Transocean Ltd. 2021 Q1 SEC Filing Summary
Business context and reporting period
Transocean is an international provider of offshore contract drilling services, focused on ultra-deepwater and harsh-environment operations. The company operated 37 mobile offshore drilling units at March 31, 2021, including 27 ultra-deepwater and 10 harsh-environment floaters, and was constructing two ultra-deepwater drillships. This Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Financial performance and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Contract drilling revenue | $653 million | $759 million | Down 14% |
| Operating loss | $67 million | $199 million | Improved by $132 million |
| Net loss | $98 million | $391 million | Improved by $293 million |
| Net loss attributable to controlling interest | $99 million | $392 million | Improved by $293 million |
| Loss per share | $0.16 | $0.64 | Improved |
| Cash flow from operations | $96 million | $(48) million | Improved by $144 million |
| Capital expenditures | $59 million | $107 million | Down $48 million |
| Total debt carrying amount | $7.620 billion | $7.807 billion at Dec. 31, 2020 | Down $187 million |
Operating margin was approximately negative 10.3% in Q1 2021, compared with negative 26.2% in Q1 2020. Net margin was approximately negative 15.0%, compared with negative 51.5% in the prior-year quarter. The filing does not provide a clear adjusted EBITDA value.
- Unrestricted cash and cash equivalents were $1.066 billion, and restricted cash was $388 million, for total unrestricted and restricted cash of $1.454 billion.
- The $1.3 billion secured revolving credit facility had no borrowings outstanding, $25 million of letters of credit, and approximately $1.3 billion of available capacity at March 31, 2021. The facility expires June 22, 2023.
- Debt principal totaled $7.249 billion, including $461 million scheduled to mature during the twelve months ending March 31, 2022. Contractual debt and interest obligations totaled $10.419 billion.
- Total fleet utilization declined to 53% from 60% in Q1 2020, while revenue efficiency improved to 97% from 94%.
- Total fleet average daily revenue increased to $373,700 from $314,900, primarily reflecting higher dayrates and the changing fleet mix.
- Contract backlog was $7.403 billion at April 28, 2021, down from $9.598 billion at April 16, 2020 and $7.842 billion at February 12, 2021.
Material changes versus the prior comparable period
- Revenue decreased by $106 million. Management attributed the decline primarily to lower activity, cold-stacked rigs, rigs sold or held for sale, and lower non-COVID reimbursement revenue. These effects were partly offset by higher dayrates, improved revenue efficiency, COVID-related reimbursement revenue, and early termination revenue.
- Operating and maintenance expense fell by $105 million, primarily due to cold-stacked, sold, or idle rigs and lower reimbursable costs. COVID-19 mitigation increased personnel and related costs by approximately $15 million.
- Q1 2020 included $168 million of impairment losses, including $137 million on assets held for sale and $31 million on a midwater floater asset group. No impairment loss was recorded in Q1 2021.
- Q1 2021 included a $60 million net loss on the sale of the harsh-environment floater Leiv Eiriksson and related assets, compared with a $1 million disposal loss in Q1 2020.
- Interest expense declined by $45 million to $115 million because of prior debt restructurings and early debt retirements.
- On February 26, 2021, Transocean issued $294 million of 4.00% senior guaranteed exchangeable bonds and exchanged $323 million of 0.50% exchangeable bonds, with an $11 million cash payment. The transaction generated a $51 million gain on debt retirement.
- Operating cash flow turned positive, while capital expenditures and debt repayments were lower than in Q1 2020. Total cash decreased by $106 million during the quarter.
- The company early adopted new convertible-instrument accounting guidance effective January 1, 2021; management stated that adoption did not change the accounting for its principal exchangeable bond instruments.
Guidance, outlook, management commentary, risks and unusual items
Management reported improving economic and commodity outlooks, increased offshore activity, and a potential recovery toward pre-pandemic demand levels. It expects deepwater and harsh-environment projects to benefit from limited drilling-unit availability, industry consolidation, and prior underinvestment. Management characterized the outlook for 2022 and beyond as more favorable but remained cautious regarding the recovery’s pace, hydrocarbon demand, and potential actions by OPEC and other producing countries.
- Uncommitted fleet rates remained high: 57% for ultra-deepwater floaters and 32% for harsh-environment floaters for the remainder of 2021, rising substantially in later years.
- COVID-19, oil-price volatility, customer financial stress, contract cancellations or renegotiations, lower dayrates, and reduced access to capital markets remain significant risks.
- Deepwater Atlas and Deepwater Titan were expected to be delivered later than their contractual delivery windows. The company was in discussions with the shipyard and customers; projected completion costs were approximately $1.095 billion for Atlas and $1.185 billion for Titan.
- Transocean expected to contribute an additional $33 million to Orion during the first half of 2021.
- Brazilian tax assessments totaled approximately $131 million, including $114 million of corporate income tax and $17 million of indirect tax. The company is contesting the assessments.
- Whitebox appealed a court ruling favorable to Transocean in litigation concerning alleged defaults and debt exchange transactions. The company stated that it did not expect a material adverse effect from the matter.
- The company has asbestos, environmental, regulatory, tax, and other legal matters. Management did not expect these matters to have a material adverse effect, but acknowledged that outcomes could differ from current estimates.
- The filing reported no material changes to previously disclosed risk factors and no material changes to internal control over financial reporting. Disclosure controls were deemed effective as of March 31, 2021.
Most important facts for an investor to verify
- Whether utilization, backlog, dayrates, and contract awards improve sufficiently to offset the high level of uncommitted fleet capacity.
- Transocean’s ability to fund $461 million of near-term principal maturities and substantial contractual debt and interest obligations while maintaining minimum liquidity and debt covenants.
- The timing, cost, customer commitments, and potential termination rights associated with Deepwater Atlas and Deepwater Titan.
- The collectability and potential cash-flow impact of the Brazilian tax assessments and other tax contingencies.
- The effect of customer credit deterioration, contract cancellations, early terminations, and further rig impairments or disposals.
- Whether the stated market recovery materializes, including the impact of oil prices, OPEC actions, COVID-19 developments, and offshore exploration spending.
- The potential dilution and refinancing implications of the company’s exchangeable bonds and other below-investment-grade debt.