Shares of Transocean LTD (NYSE:RIG) plunged last month, falling more than 17%, after the company updated the market on its fleet and reported fourth-quarter results. That said, the company had good things to say in both cases, making last month's sell-off a bit of a head-scratcher.
Transocean provided its latest fleet status report toward the end of last month. The highlight was that the company won a 10-year contract with Royal Dutch Shell for one of its newbuild drillships. Under the terms of that agreement, Shell will pay a daily rate of $519,000 for work in the Gulf of Mexico, matching the rate Shell's paying for another recently built rig under a similar 10-year contract in the region. While the length of that agreement stands out, what's even more noteworthy is the dayrate, since the company had signed deals for less than $500,000 per day in recent years for similar rigs due to challenging market conditions.
In addition to that contract, Transocean recently won several others, including a five-well deal for a rig that has been idle since the end of 2016. These awards seem to be signaling that the offshore drilling industry is slowly beginning to pull out of its multiyear tailspin.
The company also reported its fourth-quarter results last month. While it lost $0.24 per share, that was $0.04 per share better than the consensus estimate. Furthermore, Transocean noted that strong demand for certain rig types resulted in a "meaningful" improvement in dayrates. Meanwhile, the drilling contractor said it was "encouraged to see customers seeking multi-year [contracts] for assets in various basins around the world."
However, despite all this good news, shares sank last month. Oil prices played a role after crude slumped 4.7% in February, posting its first monthly loss since last June, causing some concern that oil companies might back off on signing new offshore drilling contracts. That said, as crazy as it sounds, the main reason Transocean plunged last month was because the stock market tumbled on fears that rising interest rates could stall the global economy. That sell-off caused investors to bail on riskier stocks like Transocean.
Because stock market fears and not a further deterioration in offshore drilling market conditions drove last month's sell-off, it looks like this might be a good buying opportunity for investors who are looking for a top oil stock at a low price. While Transocean's stock will likely remain volatile, patient investors could score some big-time gains if the offshore drilling market continues to improve.