No Surprises From Transocean

For Thomas's preview heading into the Transocean conference call, please click here.

Transocean (RIG - commentary - Trade Now) reported an in-line quarter, but the tone of the call was mostly upbeat. For the quarter just ended, the company posted adjusted EPS of $2.65 on revenue of $2.82 billion.

The company's total drilling fleet had an average dayrate of $283,800 (up sequentially and year over year) but had lower utilization (currently 75% vs. 85% last quarter and 89% a year ago) as the company stacked a couple more shallow-water rigs. Management stated that the company is likely to end the year with 26 jackups stacked and that it could see some reactivations in 2010. The company is not looking to actively reduce capacity but rather stacking rigs as they come off contract and don't have any prospects.

The stabilization of commodity prices has allowed for more activity. As a result, dayrates on deep-water rigs are holding up pretty well while the company expects dayrates on jackups to average down a little as more contracts expire.

Looking at the balance sheet, the company has $11.2 billion of long-term debt, down from about $12.9 billion last year. As of right now, Transocean has not yet indicated its plans for any special dividend, which would require shareholder approval and the company would have to wait until May to even ask for approval. Currently, the company has the ability to do a share repurchase but has not authorized anything yet.

Overall, the call was about as expected. I would not expect a significant change in Street estimates for EPS. The biggest takeaway seems to be the continued strength in the Brazil market -- Petrobras (PBR - commentary - Trade Now) -- and the continued weakness in the jackup market. I still like the name and will continue to hold the stock in my pair trade as described in my preview.

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At the time of publication, Thomas was long Transocean, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm's senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor's degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.