Transocean Ltd. — FY 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing also presents fourth-quarter 2012 results and compares them with 2011. Transocean is a Swiss-based global offshore contract driller focused on deepwater, ultra-deepwater and harsh-environment operations. At year-end, continuing operations included 82 mobile offshore drilling units and nine units under construction or contract to be constructed.
Financial performance and position
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Operating revenues | $9.196 billion | $8.027 billion | 15% increase |
| Contract drilling revenues | $8.773 billion | $7.407 billion | 18% increase |
| Operating income | $1.581 billion | $(4.762) billion | Improved by $6.343 billion |
| Income from continuing operations | $816 million | $(5.762) billion | Returned to profitability |
| Net income attributable to controlling interest | $(219) million | $(5.754) billion | Loss substantially reduced |
| Basic and diluted EPS from continuing operations | $2.27 | $(18.14) | Improved materially |
| Cash provided by operating activities | $2.708 billion | $1.825 billion | $883 million increase |
| Capital expenditures | $1.303 billion | $974 million | $329 million increase |
| Cash and cash equivalents | $5.134 billion | $4.017 billion | $1.117 billion increase |
| Total debt | $12.459 billion | $13.536 billion | $1.077 billion decrease |
| Total equity | $15.730 billion | $15.627 billion | $103 million increase |
Continuing-operations operating margin was approximately 17.2% in 2012 versus negative 59.3% in 2011, although comparisons were heavily affected by the 2011 goodwill impairment. Net loss for 2012 included a $1.027 billion loss from discontinued operations.
- Revenue earning days increased 18% to 23,577, while utilization improved to 78% from 69%.
- Average daily revenue increased 1% to approximately $370,300.
- Fourth-quarter 2012 fleet average utilization was 79%, revenue efficiency was 95%, and average daily revenue was $382,000.
- At December 31, 2012, total contractual obligations were $23.243 billion, including $11.589 billion of debt, $6.265 billion of interest, $3.766 billion of purchase obligations and $1.201 billion of capital-lease obligations.
- At December 31, 2012, the company had $2.0 billion available under its five-year revolver and $900 million available under its three-year secured revolver, with no borrowings outstanding under either facility at February 20, 2013.
Material changes versus the prior comparable period
- Contract drilling revenue rose primarily because of more revenue-earning days, contributions from Aker Drilling units and newbuilds, and improved dayrates. Other revenue declined 32%, mainly because of lower drilling-management-services activity.
- Operating and maintenance expense declined slightly to $6.106 billion, helped by lower Macondo-related accruals and lower drilling-management costs, partly offset by higher shipyard, maintenance and newbuild operating costs.
- 2011 included a $5.2 billion goodwill impairment. In 2012, Transocean recorded a further $118 million goodwill impairment, a $22 million impairment of drilling-management customer relationships, and $140 million of continuing-operations impairment losses.
- The company completed the sale of 38 Standard Jackups and one swamp barge to Shelf Drilling in November 2012. The assets were reported as discontinued operations, and Transocean recognized $744 million of long-lived-asset impairment and $112 million of goodwill impairment related to the disposal group.
- Transocean issued $1.5 billion of senior notes in September 2012 and repurchased $1.7 billion of Series C Convertible Senior Notes in December 2012. It also issued 8.7 million shares to acquire Quantum’s remaining interest in TPDI and paid a final $278 million installment of previously approved shareholder distributions.
- Contract backlog associated with continuing operations was approximately $29.4 billion at December 31, 2012, up 40.7% from $20.9 billion at December 31, 2011. It was $28.844 billion as of February 14, 2013.
Guidance, outlook, risks and unusual items
- Management expected 2013 revenue to exceed 2012 revenue, supported by higher dayrates, fewer expected out-of-service and idle days, increased drilling-management activity, and newbuilds entering service. Management also expected operating and maintenance expenses to increase after excluding 2012 loss-contingency charges.
- Uncommitted fleet rates at February 14, 2013 were 14% for high-specification floaters, 44% for midwater floaters and 9% for high-specification jackups for the remainder of 2013. The corresponding 2014 rates were 45%, 50% and 31%.
- 2013 capital expenditures were expected to be approximately $2.9 billion, including approximately $1.7 billion for major construction projects. Total estimated costs for listed major construction projects were $5.672 billion.
- The Macondo well incident remained the principal contingency. Transocean had recognized $1.9 billion of probable loss contingencies at December 31, 2012, while stating that the ultimate exposure could not be estimated. The company estimated more than $4.0 billion of cumulative effects from lost backlog, lost revenue, incremental costs and other losses over the three years ended December 31, 2012.
- Subsequent to year-end, Transocean agreed to pay $1.4 billion, excluding interest, under DOJ plea and consent-decree agreements through 2017. The obligations include a $1.0 billion civil penalty, a $100 million criminal fine, and $300 million for environmental and scientific organizations. The agreements impose five years of probation, compliance obligations and additional operational oversight.
- The Macondo-related litigation, indemnity disputes with BP, insurance interpleader actions and potential additional environmental or natural-resource claims remained unresolved. Enhanced post-Macondo regulations may increase maintenance costs, certification requirements, downtime and permitting delays.
- The Brazil Frade field litigation created a risk of damages, penalties or restrictions on operations. A preliminary injunction was suspended in late 2012, but the underlying proceedings continued. Brazil represented approximately 12% of 2012 consolidated operating revenue.
- Other risks include cyclical offshore drilling markets, excess rig supply, dayrate pressure, customer contract cancellations, substantial leverage, credit-rating downgrades, shipyard delays, tax disputes in the United States, Norway and Brazil, environmental liabilities and reliance on major customers. Chevron, BP and Petrobras represented approximately 11%, 11% and 10% of 2012 continuing-operations revenue, respectively.
- The filing disclosed a correction of previously reported errors, including a $67 million reduction in previously recognized insurance-recovery assets. The 2011 continuing-operations loss was increased by $31 million and the loss attributable to controlling interest by $29 million.
Most important facts for investors to verify
- Cash available after reserving approximately $1.5 billion for working capital and operating needs, and the timing of DOJ-related cash payments.
- Final Macondo litigation, indemnity, insurance-recovery and natural-resource-damage exposure beyond the $1.9 billion accrued liability.
- Execution, cost and delivery timing for the nine newbuild units and the expected approximately $2.9 billion of 2013 capital expenditures.
- Actual utilization, dayrates and contract awards relative to the disclosed uncommitted fleet rates and $28.8 billion backlog.
- Debt maturities, covenant compliance and potential effects of further credit-rating downgrades.
- Resolution of Brazil Frade proceedings and the related indemnification position with Chevron.
- Outcome of U.S., Norwegian and Brazilian tax disputes, including approximately $581 million of unrecognized tax benefits and other assessed amounts.
- Whether discontinued operations and Shelf Drilling transition obligations generate additional losses or require further financial support.
Audit and controls: Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that internal controls were effective as of December 31, 2012.