Transocean Dumps Shallow Water Drilling

Transocean (NYSE: RIG  ) is finally making a big move to get rid of shallow water drilling rigs to focus on the ultra-deepwater market that is driving the industry. In a deal announced yesterday, the company said it was selling 38 shallow water drilling rigs to Shelf Drilling International for $1.05 billion. Transocean will be paid $855 million in cash and finance the rest of the sale price to the buyer.

The move is part of a strategy by Transocean to focus on newer rigs in deeper water where there is extremely high demand. Over the past year, long after the Deepwater Horizon accident, Transocean has underperformed rivals Seadrill (NYSE: SDRL  ) and Noble (NYSE: NE  ) who are also focusing on ultra-deepwater.

SDRL Total Return Price Chart

SDRL Total Return Price data by YCharts

The shallow water rigs that Transocean had in its inventory had a negative impact on results and now Transocean will be down to 92 rigs, 29 of which can operate in 7,500 feet of water or more. This focus on the most lucrative side of the market should help improve profitability and growth.

Shallow water's best days are over
The difference between companies focusing on shallow water and deep water couldn't be starker right now. Five of the rigs being sold are currently stacked, or out of service, and the industry has an oversupply of shallow water rigs, leading to losses at shallow water drillers. Hercules Offshore (Nasdaq: HERO  ) is a perfect example of the struggle. As you can see below, Hercules has been losing money and growing more slowly than Seadrill, a company leveraged to the deepwater market.

SDRL Revenue Growth Chart

SDRL Revenue Growth data by YCharts

The sale of assets by Transocean will leverage the company to ultra-deepwater drilling, which is a good thing right now. I like the move and think it can help get Transocean out of the funk it seems to be in.

However, Seadrill already has a sizable percentage of ultra-deepwater rigs. You can find out more about Seadrill, one of the top stocks in drilling, in our premium report on the company. It comes with a year of free updates and much more, so click here to see if the report is right for you.

Fool contributor Travis Hoium manages an account that owns shares of Seadrill. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool owns shares of Seadrill and Transocean. Motley Fool newsletter services have recommended buying shares of Seadrill and Hercules Offshore. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2013221, ~/Articles/ArticleHandler.aspx, 10/22/2016 9:23:05 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:03 PM
RIG $10.50 Down -0.09 -0.85%
Transocean CAPS Rating: ****
HERO.DL $1.16 Down -0.02 -1.50%
Hercules Offshore CAPS Rating: **
NE $5.97 Down -0.04 -0.67%
Noble CAPS Rating: ****
SDRL $2.31 Down -0.04 -1.70%
Seadrill CAPS Rating: ***