The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) --In its latest earnings,


(RIG) - Get Transocean Ltd. Report

reported that utilization levels had gone down in the first six month of 2011 compared to those in 2010.

However Transocean expects business to pick up over the next six months with rising interest in offshore exploration. The world's largest offshore driller also reported that it had seen pricing improve slightly in ultra-deepwater activity. Transocean competes with other players in the offshore drilling industry such as as

Diamond Offshore

(DO) - Get Diamond Offshore Drilling, Inc. Report


Hercules Offshore


, Seahawk Drilling,

ENSCO International



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Rowan Companies



We have revised our

price estimate for Transocean to $77.50

, a 40% premium above its current market price.

Transocean added $1.5 billion in new contracts in second quarter with offshore activity driven by new discoveries in Ghana, Vietnam, Brazil and the U.S. Gulf of Mexico. The resumption of activity in the Gulf of Mexico, the commencement of operations of Deepwater Champion in the Black Sea and an improvement in revenue efficiency led to an increase in the profitability in the segment.

With the ultra deepwater market tightening, Transocean finished a $7 billion program to add 10 new rigs that would help it expand to become the largest player in the high-spec segment.

Transocean is also continuing its efforts to reduce its exposure to the low-spec segment with the sale of three Jackups and a swamp barge. Day rates and utilization in the Ultra deepwater segment are much higher than in other segments because of the fewer number of rigs that can operate in the demanding conditions. Other segments such as the deepwater and the premium and standard jackup segment also saw increased contracting activity.

Transocean reported increased operating costs in the second quarter over the previous quarter with higher maintenance and contract preparation costs. The company increased its cost guidance estimates slightly as contract preparation costs are expected to increase as customers look for more specialized equipment.

The capital expenditure is expected to be around $1.1 billion as the company looks to focus on the high-end segment. Transocean expects to cut down on out-of-service time for its fleet for the rest of the year. However higher contract activity can push up rig reactivation costs putting pressure on the company's margins over the short term.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.