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Transocean Ltd. Reports First Quarter 2015 Results

May 6, 2015
  • Revenues were $2.043 billion, compared with $2.237 billion in the fourth quarter of 2014;
  • Operating and maintenance expenses were $1.084 billion, down from $1.310 billion in the prior period;
  • Adjusted net income was $398 million, or $1.10 per diluted share, which excludes net unfavorable items;
  • Net loss attributable to controlling interest was $483 million, or $1.33 per diluted share, including $881 million of net unfavorable items, versus the comparable fourth quarter net loss of $739 million, or $2.04 per diluted share, including $1.083 billion of net unfavorable items;
  • The Annual Effective Tax Rate(1) was 25.8 percent, down from 26.5 percent in the prior quarter;
  • Cash flows from operating activities were $526 million, down sequentially from $566 million;
  • Fleet revenue efficiency(2) was 95.9 percent, compared to 95.3 percent in the fourth quarter of 2014. Revenue efficiency on ultra-deepwater rigs was 97.2 percent, up from 95.4 percent in the prior quarter;
  • Fleet utilization(3) was 79 percent, up from 73 percent in the fourth quarter of 2014; and
  • Contract backlog was $19.9 billion as of the April 16, 2015, Fleet Status Report.

ZUG, SWITZERLAND-May 6, 2015-Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported a net loss attributable to controlling interest for the three months ended March 31, 2015 of $483 million, or $1.33 per diluted share. First quarter 2015 results included net unfavorable items of $881 million, $2.43 per diluted share, as follows:

  • $481 million, or $1.34 per diluted share, associated with an impairment of the Deepwater Floater asset group;
  • As previously announced, $393 million, or $1.07 per diluted share, in impairments of assets classified as held for sale;
  • $5 million, or $0.01 per diluted share, in costs related to one-time termination benefits; and
  • $2 million, or $0.01 per diluted share, primarily associated with discontinued operations and other items.

After consideration of these net unfavorable items, first quarter adjusted net income was $398 million, or $1.10 per diluted share. 

For the three months ended March 31, 2014, the company reported net income attributable to controlling interest of $456 million, or $1.25 per diluted share, which included net unfavorable items of $64 million, or $0.18 per diluted share. After consideration of these net unfavorable items, adjusted net income was $520 million, or $1.43 per diluted share.

Revenues for the three months ended March 31, 2015 decreased $194 million sequentially to $2.043 billion due primarily to reduced activity associated with stacked and idle rigs, and asset disposals, partly offset by fewer out-of-service days.

Operating and maintenance expenses decreased $226 million sequentially to $1.084 billion. The decrease was mainly associated with the company's onshore and offshore cost reduction initiatives including the optimization of maintenance and out-of-service costs, asset disposals, and stacking of rigs.

General and administrative expenses decreased $16 million from the prior quarter to $46 million due primarily to the company's cost reduction initiatives and certain costs incurred in the fourth quarter of 2014 that were not repeated in the first quarter.

Due primarily to the asset impairments and favorable changes in estimates related to prior years' tax liabilities, Transocean's first quarter 2015 Effective Tax Rate(4) was (21.6) percent, compared with (1.3) percent in the fourth quarter of 2014. Transocean's Annual Effective Tax Rate for the first quarter of 2015 was 25.8 percent, compared with the full year 2014 Annual Effective Tax Rate of 18.7 percent. The increase was due partly to the overall level of pre-tax income and to U.K. legislation associated with bareboat charter payments to affiliates. The Annual Effective Tax Rate excludes the effect of the impairments.

Interest expense, net of amounts capitalized, was $116 million in the first quarter of 2015, down from $123 million in the prior quarter. Interest income was $6 million, compared with $8 million in the fourth quarter of 2014. Capitalized interest was $26 million, compared with $24 million in the prior quarter.

Cash flows from operating activities decreased $40 million from the fourth quarter of 2014 to $526 million.

Capital expenditures decreased $117 million sequentially to $201 million due primarily to lower project costs on the existing fleet.

Non-GAAP Financial Measures

All non-GAAP financial measure reconciliations to the most comparative GAAP measure are displayed in quantitative schedules on the company's website at www.deepwater.com.

Forward-Looking Statements

The statements described in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements contain words such as "possible," "intend," "will," "if," "expect" or other similar expressions. Forward-looking statements are based on management's current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, changes in tax estimates, impairment of goodwill, asset impairments, operating hazards and delays, risks associated with international operations, actions by customers and other third parties, the future prices of oil and gas, capital markets and other factors, including those and other risks discussed in the company's most recent Annual Report on Form 10-K for the year ended December 31, 2014, and in the company's other filings with the SEC, which are available free of charge on the SEC's website at www.sec.gov. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur, or which we become aware of, after the date hereof, except as otherwise may be required by law.

This press release, or referenced documents, do not constitute an offer to sell, or a solicitation of an offer to buy, any securities, and do not constitute an offering prospectus within the meaning of article 652a or article 1156 of the Swiss Code of Obligations or a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange. Investors must rely on their own evaluation of Transocean and its securities, including the merits and risks involved. Nothing contained herein is, or shall be relied on as, a promise or representation as to the future performance of Transocean.

Conference Call Information

Transocean will conduct a teleconference starting at 9:30 a.m. EDT, 3:30 p.m. CEST, on Thursday, May 7, 2015, to discuss the results. To participate, dial +1 913-312-1376 and refer to confirmation code 3397826 approximately 10 minutes prior to the scheduled start time.

The teleconference will be simulcast in a listen-only mode over the Internet and can be accessed at Transocean's website, www.deepwater.com, by selecting "Investor Relations/Overview." Supplemental materials that may be referenced during the teleconference will be posted to Transocean's website and can be found by selecting "Investor Relations/Financial Reports."

A replay of the conference call will be available after 12:30 p.m. EDT, 6:30 p.m. CEST, on May 7, 2015. The replay, which will be archived for approximately 30 days, can be accessed by dialing +1 719-457-0820 and referring to the confirmation code 3397826. The replay will also be available by on the company's website.

About Transocean

Transocean is a leading international provider of offshore contract drilling services for oil and gas wells. The company specializes in technically demanding sectors of the global offshore drilling business with a particular focus on deepwater and harsh environment drilling services, and believes that it operates one of the most versatile offshore drilling fleets in the world. 

Transocean owns or has partial ownership interests in, and operates a fleet of 65 mobile offshore drilling units consisting of 41 high-specification floaters (ultra-deepwater, deepwater and harsh environment drilling rigs), 14 midwater floaters and 10 high-specification jackups. In addition, the company has seven ultra-deepwater drillships and five high-specification jackups under construction.

For more information about Transocean, please visit: www.deepwater.com.

Analyst Contacts:
Thad Vayda               
+1 713-232-7551                                  

Diane Vento
+1 713-232-8015

Media Contact:
Pam Easton                                       
+1 713-232-7647

Notes

(1) Annual Effective Tax Rate is defined as income tax expense from continuing operations excluding various discrete items (such as changes in estimates and tax on items excluded from income before income tax expense), divided by income from continuing operations before income tax expense excluding gains on sales and similar items pursuant to the accounting standards for income taxes. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."

(2) Revenue efficiency is defined as actual contract drilling revenues for the measurement period divided by the maximum revenue calculated for the measurement period, expressed as a percentage.  Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding amounts related to incentive provisions. See the accompanying schedule entitled "Revenue Efficiency."

(3) Rig utilization is defined as the total number of operating days divided by the total number of rig calendar days in the measurement period, expressed as a percentage. See the accompanying schedule entitled "Utilization."

(4) Effective Tax Rate is defined as income tax expense for continuing operations divided by income from continuing operations before income taxes. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."


TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)

    Three months ended
March 31,
    2015   2014
Operating revenues                
Contract drilling revenues   $ 2,000     $ 2,292  
Other revenues     43       47  
      2,043       2,339  
Costs and expenses                
Operating and maintenance     1,084       1,269  
Depreciation     291       273  
General and administrative     46       57  
      1,421       1,599  
Loss on impairment     (936 )     (65 )
Loss on disposal of assets, net     (7 )     (3 )
Operating income (loss)     (321 )     672  
                 
Other income (expense), net                
Interest income     6       10  
Interest expense, net of amounts capitalized     (116 )     (126 )
Other, net     47       (2 )
      (63 )     (118 )
Income (loss) from continuing operations before income tax expense     (384 )     554  
Income tax expense     83       80  
Income (loss) from continuing operations     (467 )     474  
Loss from discontinued operations, net of tax     (2 )     (8 )
                 
Net income (loss)     (469 )     466  
Net income attributable to noncontrolling interest     14       10  
Net income (loss) attributable to controlling interest   $ (483 )   $ 456  
                 
Earnings (loss) per share-basic                
Earnings (loss) from continuing operations   $ (1.32 )   $ 1.27  
Loss from discontinued operations     (0.01 )     (0.02 )
Earnings (loss) per share   $ (1.33 )   $ 1.25  
                 
Earnings (loss) per share-diluted                
Earnings (loss) from continuing operations   $ (1.32 )   $ 1.27  
Loss from discontinued operations     (0.01 )     (0.02 )
Earnings (loss) per share   $ (1.33 )   $ 1.25  
                 
Weighted-average shares outstanding                
Basic     363       361  
Diluted     363       361  

TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)

    March 31,
2015
  December 31,
2014
             
Assets            
Cash and cash equivalents   $ 2,682     $ 2,635  
Accounts receivable, net of allowance for doubtful accounts
of $14 at March 31, 2015 and December 31, 2014
    1,964       2,120  
Materials and supplies, net of allowance for obsolescence
of $112 and $109 at March 31, 2015 and December 31, 2014, respectively
    807       818  
Assets held for sale     23       25  
Deferred income taxes, net     157       161  
Other current assets     210       242  
Total current assets     5,843       6,001  
                 
Property and equipment     26,740       28,516  
Less accumulated depreciation     (6,174 )     (6,978 )
Property and equipment, net     20,566       21,538  
Other assets     696       874  
Total assets   $ 27,105     $ 28,413  
                 
Liabilities and equity                
Accounts payable   $ 619     $ 784  
Accrued income taxes     217       131  
Debt due within one year     1,024       1,033  
Other current liabilities     1,313       1,822  
Total current liabilities     3,173       3,770  
                 
Long-term debt     8,996       9,059  
Deferred income taxes, net     152       237  
Other long-term liabilities     1,263       1,354  
Total long-term liabilities     10,411       10,650  
                 
Commitments and contingencies                
Redeemable noncontrolling interest     11       11  
                 
Shares, CHF 15.00 par value, 396,260,487 authorized, 167,617,649 conditionally authorized, 373,830,649 issued at March 31, 2015 and December 31, 2014 and 363,346,369 and 362,279,530 outstanding at March 31, 2015 and December 31, 2014, respectively     5,183       5,169  
Additional paid-in capital     5,806       5,797  
Treasury shares, at cost, 2,863,267 held at March 31, 2015 and December 31, 2014     (240 )     (240 )
Retained earnings     2,866       3,349  
Accumulated other comprehensive loss     (414 )     (404 )
Total controlling interest shareholders' equity     13,201       13,671  
Noncontrolling interest     309       311  
Total equity     13,510       13,982  
Total liabilities and equity   $ 27,105     $ 28,413  

TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

    Three months ended
March 31,
    2015   2014
Cash flows from operating activities                
Net income (loss)   $ (469 )   $ 466  
Adjustments to reconcile to net cash provided by operating activities:                
Amortization of drilling contract intangibles     (4 )     (4 )
Depreciation     291       273  
Share-based compensation expense     19       28  
Loss on impairment     936       65  
Loss on disposal of assets, net     7       3  
Loss on disposal of assets in discontinued operations, net     -       10  
Deferred income taxes     (98 )     (15 )
Other, net     12       12  
Changes in deferred revenue, net     (39 )     (26 )
Changes in deferred costs, net     57       38  
Changes in operating assets and liabilities     (186 )     (714 )
Net cash provided by operating activities     526       136  
                 
Cash flows from investing activities                
Capital expenditures     (201 )     (1,131 )
Proceeds from disposal of assets, net     7       91  
Proceeds from disposal of assets in discontinued operations, net     2       14  
Other, net     -       (12 )
Net cash used in investing activities     (192 )     (1,038 )
                 
Cash flows from financing activities                
Repayments of debt     (63 )     (237 )
Proceeds from restricted cash investments     57       107  
Deposits to restricted cash investments     -       (20 )
Distribution of qualifying additional paid-in capital     (272 )     (202 )
Distribution to holders of noncontrolling interest     (7 )     -  
Other, net     (2 )     (2 )
Net cash used in financing activities     (287 )     (354 )
                 
Net increase (decrease) in cash and cash equivalents     47       (1,256 )
Cash and cash equivalents at beginning of period     2,635       3,243  
Cash and cash equivalents at end of period   $ 2,682     $ 1,987  
                 


TRANSOCEAN LTD. AND SUBSIDIARIES
FLEET OPERATING STATISTICS

  Operating Revenues (in millions)
  Three months ended
  March 31,
2015
    December 31,
2014
    March 31,
2014
Contract drilling revenues                    
  High-Specification Floaters:                    
  Ultra-Deepwater Floaters $ 932       997       1,197
  Deepwater Floaters   219       277       259
  Harsh Environment Floaters   261       312       286
  Total High-Specification Floaters   1,412       1,586       1,742
  Midwater Floaters   429       428       411
High-Specification Jackups   155       149       135
Contract intangible revenue   4       4       4
Total contract drilling revenues   2,000       2,167       2,292
                     
Other revenues                    
  Client reimbursable revenues   42       40       44
  Other   1       30       3
Total other revenues   43       70       47
Total revenues   2,043       2,237       2,339
                     
                     
  Average Daily Revenue (1)
  Three months ended
  March 31,
2015
    December 31,
2014
    March 31,
2014
  High-Specification Floaters:                    
  Ultra-Deepwater Floaters $ 535,100     $ 544,800     $ 547,000
  Deepwater Floaters   342,100       391,100       392,000
  Harsh Environment Floaters   531,300       484,000       454,700
  Total High-Specification Floaters   491,500       498,300       500,900
  Midwater Floaters   343,300       338,500       334,500
  High-Specification Jackups   174,400       170,200       162,000
Total   398,300       406,400       413,100
                     
  1. Average daily revenue is defined as contract drilling revenues earned per operating day.  An operating day is defined as a calendar day during which a rig is contracted to earn a dayrate during the firm contract period after commencement of operations.


TRANSOCEAN LTD. AND SUBSIDIARIES
FLEET OPERATING STATISTICS (continued)

  Utilization (2)
  Three months ended
  March 31,
2015
    December 31,
2014
    March 31,
2014
  High-Specification Floaters:                    
  Ultra-Deepwater Floaters 68%     69%     90%
  Deepwater Floaters 85%     64%     61%
  Harsh Environment Floaters 78%     100%     100%
  Total High-Specification Floaters 73%     72%     84%
  Midwater Floaters 85%     65%     62%
  High-Specification Jackups 99%     95%     84%
Total 79%     73%     78%
                     
2. Rig utilization is defined as the total number of operating days divided by the total number of available rig calendar days in the measurement period, expressed as a percentage.  

Revenue Efficiency(3)  
Trailing Five Quarters and Historical Data  
            
  1Q 2015 4Q 2014 3Q 2014 2Q 2014 1Q 2014  

FY 2014
FY 2013
Ultra-Deepwater 97.2% 95.4% 91.6% 94.0% 96.4% 94.3% 89.4%
Deepwater 95.9% 96.3% 93.3% 94.5% 100.5% 96.2% 91.0%
Harsh Environment Floaters 96.8% 96.0% 94.7% 95.7% 96.3% 95.7% 96.9%
Midwater Floaters 91.4% 93.0% 92.2% 97.0% 91.1% 93.3% 93.5%
High Specification Jackups 99.3% 99.0% 97.0% 97.3% 94.5% 97.0% 97.8%
Total 95.9% 95.3% 92.6% 95.0% 95.7% 94.7% 91.7%
            
3. Revenue efficiency is defined as actual contract drilling revenues for the measurement period divided by the maximum revenue calculation for the measurement period, expressed as a percentage.  Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding amounts related to incentive provisions.  



Transocean Ltd. and Subsidiaries
Supplemental Effective Tax Rate Analysis
(In US$ millions, except tax rates)
 
 
 
  Three months ended  
  March 31,     December 31,     March 31,  
  2014     2014     2014  
                       
Income from continuing operations before income taxes $ (384 )   $ (752 )   $ 554  
  Add back (subtract):                      
  Litigation matters   -       -       3  
  One-time termination benefits   5       1       1  
  Loss on impairment of goodwill and other assets   936       1,210       65  
  Gain on disposal of assets, net   (2 )     (6 )     -  
  Loss on retirement of debt   -       8       1  
Adjusted income from continuing operations before income taxes   555       461       624  
                       
Income tax expense (benefit) from continuing operations   83       10       80  
  Add back (subtract):                      
  Litigation matters   -       -       1  
  Loss on impairment of goodwill and other assets   62       48       -  
  Gain on disposal of assets, net   (1 )     (2 )     -  
  Changes in estimates (1)   (1 )     66       13  
Adjusted income tax expense from continuing operations (2) $ 143     $ 122     $ 94  
                       
Effective Tax Rate (3)   (21.6) %     (1.3) %     14.4 %
                       
Annual Effective Tax Rate (4)   25.8 %     26.5 %     15.1 %
                       
1. Our estimates change as we file tax returns, settle disputes with tax authorities or become aware of other events and include changes in (a) deferred taxes, (b) valuation of allowances on deferred taxes and (c) other tax liabilities.
2. The three months ended December 31, 2014 includes $36 million of additional tax expense (benefit) reflecting the catch-up effect of an increase (decrease) in the annual effective tax rate from the previous quarter estimate.
3. Effective Tax Rate is income tax expense for continuing operations, divided by income from continuing operations before income taxes.
4. Annual Effective Tax Rate is income tax expense for continuing operations, excluding various discrete items (such as changes in estimates and tax on items excluded from income before income taxes), divided by income from continuing operations before income tax expense excluding gains and losses on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate.


Transocean Ltd. and Subsidiaries
Non-GAAP Financial Measures and Reconciliations
Adjusted Net Income and Adjusted Diluted Earnings Per Share
(in US$ millions, except per share data)

  QTD
  03/31/15
Adjusted Net Income  
Net income (loss) attributable to controlling interest, as reported $(483)
Add back (subtract):  
One-time termination benefits 5
Loss on impairment of assets 874
Gain on disposal of assets, net (1)
Loss from discontinued operations 2
Discrete tax items and other, net 1
Net income, as adjusted $398
  
Adjusted Diluted Earnings Per Share:  
Diluted earnings (loss) per share, as reported $(1.33)
Add back (subtract):  
One-time termination benefits 0.01
Loss on impairment of assets 2.41
Gain on disposal of assets, net -
Loss from discontinued operations 0.01
Discrete tax items and other, net -
Diluted earnings per share, as adjusted $1.10

  YTD QTD YTD QTD YTD QTD QTD
  12/31/14 12/31/14 09/30/14 09/30/14 06/30/14 06/30/14 03/31/14
Adjusted Net Income        
Net income (loss) attributable to controlling interest, as reported $(1,913) $(739) $(1,174) $(2,217) $1,043 $587 $456
Add back (subtract):        
Litigation matters (12) - (12) (14) 2 - 2
One-time termination benefits 9 1 8 3 5 4 1
Loss on impairment of goodwill and other assets 3,826 1,140 2,686 2,621 65 - 65
(Gain) loss on disposal of assets, net (2) (4) 2 3 (1) (1) -
Loss on retirement of debt 13 8 5 - 5 4 1
Loss on disposal of assets in discontinued operations 10 - 10 - 10 - 10
Loss (income) from discontinued operations 10 4 6 1 5 7 (2)
Discrete tax items and other, net (138) (66) (72) (45) (27) (14) (13)
Net income, as adjusted $1,803 $344 $1,459 $352 $1,107 $587 $520
        
Adjusted Diluted Earnings Per Share:        
Diluted earnings (loss) per share, as reported $(5.29) $(2.04) $(3.24) $(6.12) $2.86 $1.61 $1.25
Add back (subtract):        
Litigation matters (0.03) - (0.03) (0.04) 0.01 - 0.01
One-time termination benefits 0.02 - 0.02 0.01 0.01 0.01 -
Loss on impairment of goodwill and other assets 10.53 3.15 7.39 7.22 0.19 - 0.19
(Gain) loss on disposal of assets, net (0.01) (0.01) 0.01 0.01 - - -
Loss on retirement of debt 0.04 0.02 0.01 - 0.01 0.01 -
Loss on disposal of assets in discontinued operations 0.03 - 0.03 - 0.03 - 0.03
Loss (income) from discontinued operations 0.03 0.01 0.02 - 0.01 0.02 (0.01)
Discrete tax items and other, net (0.38) (0.18) (0.21) (0.12) (0.08) (0.04) (0.04)
Diluted earnings per share, as adjusted $4.94 $0.95 $4.00 $0.96 $3.04 $1.61 $1.43

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