Transocean shares outlook for offshore drilling

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(Market Realist) In its 2Q17 conference call, Transocean (RIG) shared its outlook for the offshore drilling market.

The company’s view of the industry could also shed some light on the outlook for offshore peers (IYE) Seadrill (SDRL), Diamond Offshore (DO), Noble (NE), Rowan Companies (RDC), Atwood Oceanics (ATW), and Ocean Rig (ORIG).

Some of the key points Transocean shared are as follows:

  • Transocean’s long-term view of the offshore drilling market, especially for the high-specification floaters, is positive.
  • The demand for drilling rigs is closely tied to oil prices. Even though recent oil prices have fallen below $50 per barrel, the prices are above the lows seen in 2016. Transocean thinks that the current oil supply and demand imbalance will eventually narrow. As spare oil capacity decreases, Transocean expects upward pressure on commodity prices. It will increase the demand for drilling rigs.
  • In 1H17, the total floater fixtures recorded were higher than fixtures recorded in fiscal 2016. In the past three months, 32 industry fixtures were awarded. If this pace of fixtures continues, Transocean thinks that the industry will surpass the total fixtures in 2015 and 2016 this year. Although the demand has increased, the day rates on these contracts remain under pressure as the floater market remains oversupplied.
  • Transocean has a “cautious” outlook for the near term.
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