Offshore-drilling services major Transocean
The initial reaction to this piece of news might be some raised eyebrows. But it seems CEO Steven Newman clearly knows what he's up to. In simple terms, management has its eyes set on some solid long-term returns at the cost of sacrificing some mediocre short-term gains.
So what was the catalyst for this sale? It's an opportunity to add a huge $7.6 billion as contract backlog. To put that into perspective, it's a substantial 33% addition to its existing $22.9 billion worth of backlog orders. Transocean has bagged 10-year drilling contracts that potentially require construction of four ultra-deepwater drillships. To adequately fund the estimated $3 billion capital expenditure, the company is also planning to issue debt of $1.5 billion.
Transocean isn't exactly debt-free. In fact, the latest issuance is over and above its $12.8 billion of existing debt. However, management has little to lose, as ultra-deepwater drilling looks here to stay.
The magic words: ultra-deepwater drilling
No prizes for guessing whose success story Transocean is trying to emulate. Last month, energy editor and fellow Fool Joel South analyzed Seadrill's
That said, Transocean is no stranger to controversies. Since the Gulf of Mexico tragedy in 2010, the company has been courting trouble. The company is yet to reach a settlement with BP, and it's been involved in another spill with Chevron off the Brazilian coast.
Foolish bottom line
In spite of these troubles, I think management has made the right choice. Ultra-deepwater drilling should turn Transocean profitable, as it has with Seadrill. To find out how Seadrill did it, grab a copy of our premium report on the company. The report contains Seadrill's game plan and what to expect from the company looking forward. Get started!
Fool contributor Isac Simon owns no shares of the companies mentioned in this article. The Motley Fool owns shares of Transocean and Seadrill. Motley Fool newsletter services have recommended buying shares of Chevron and Seadrill. We Fools don't 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. The Motley Fool has a disclosure policy.