What happened
Transocean (RIG 2.27%) stock crashed this morning, trading 14% lower as of 11:30 a.m. ET. Until the market close yesterday, shares of the Switzerland-based offshore drilling services provider were up a staggering 101% in just four months. Transocean's latest quarterly numbers amid declining crude oil prices, however, appear to be encouraging some investors in the oil stock to take some profits off the table today.
So what
Transocean reported its fourth-quarter numbers last evening. Its total contract drilling revenues declined 2.4% year over year and dropped nearly 12% sequentially, as five of the company's rigs remained idle in the quarter.
With operating, maintenance, and general expenses also on the rise, Transocean reported an adjusted net loss of $0.49 per share, a sharp drop from a loss of $0.19 per share that it reported in Q4 2021. The company missed analysts' estimates on both the top and bottom lines, which explains why the stock is sinking today.
Now what
On Feb. 16, Barclays downgraded its rating on Transocean stock with a price target of $7 a share, citing valuation concerns given the stock's dizzying rally in recent months. At that point, the oil stock was trading above Barclays' target price and has dropped consistently since. Low revenue and a larger-than-expected drop in earnings unsurprisingly triggered a massive sell-off today.
But Transocean is bullish, as it believes the offshore drilling industry has just entered a "multiyear upcycle" after enduring eight "exceptionally challenging years."
There may be some merit in Transocean's optimism. Demand for offshore rigs and day rates have soared in recent quarters. Transocean has won several contracts in recent months, adding $4 billion to its backlog in 2022 and reporting a total contract backlog of $8.5 billion as of Feb. 9.
With industry experts projecting higher offshore activity and day rates for 2023, Transocean stock, despite its massive recent run-up, could continue to attract the attention of some investors in oil stocks.
