Stressed Out: Transocean's Fleet Update Is Positive, But Market Conditions Hamper Recovery

 | Feb 16, 2016 | 12:16 PM EST
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

Transocean's (RIG) stock price, along with the rest of the oil service industry, has been at the mercy of falling crude prices. With a 40% decline in the commodity so far this year, this stressed out stock could use some sort of reprieve.

Last week, the company provided its latest fleet status update. New deals and extensions in contracts Transocean signed were worth about $500 million, according to the report. Analysts at Raymond James were bullish on the company following its release.

"We estimate Transocean has won about 25% of all floater rig years signed since the start of 4Q 2015. As such, we view these successful efforts positively. Finally, Transocean continues to high-grade its fleet and has stacked eight rigs since November," said analyst Praveen Narra.

"This fleet status update from Transocean demonstrated management's commitment to streamlining its active fleet and ability to keep rigs working, despite extremely challenging market conditions," Narra said.

"RIG's marketing team deserves kudos for winning about 40% of YTD floater days contracted," said Credit Suisse's Gregory Lewis.

The capital expenditure growth rate for the S&P 500 energy sector was down 23.3% in 2015. As of Dec. 31, the consensus capex budget estimates for the entire industry for 2016 was forecast at $133.5 billion. Since then, analysts have lowered that estimate to $116.3 billion, a nearly 13% reduction from the previous year. Because of the oil market slowdown -- that has shown very few signs of abating anytime soon -- drillers across the industry cut capital expenditure budgets drastically in recent months.

Transocean raised the expected out-of-service time for its fleet of deepwater drillers by 126 days. 

Meanwhile, fellow oilfield services company and stressed out stock Weatherford International (WFT) has been under some sell pressure from analysts.

Analysts at Deutsche Bank lowered the company's price target to $10 from $11 last week, though they also maintained a Buy rating. Analysts at Scotiabank also lowered the company's price target this month.

So while Transocean's fleet update shows that the company is doing a good job of weathering the current market conditions, the perception of the oil market will continue to weigh on the performance of offshore drillers. 

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Weatherford Shows Signs of Life, Cutting Jobs to Stay Afloat

Stressed Out: Transocean Dinged by Murphy Oil

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