Transocean (NYSE:RIG) will release its quarterly report on Wednesday, and shareholders have been a bit disappointed that its stock has lagged behind shares of rival Seadrill (NYSE:SDRL) over the past few months. Yet even with some short-term headwinds, Transocean has the long-term potential to keep up with and even surpass the growth prospects for Seadrill and Ensco (NYSE:VAL) in the massive and growing deepwater drilling market.

In the U.S., a lot of attention has focused on the success of land-based shale plays like the Bakken and Eagle Ford areas. But around the world, amazing finds of undersea treasure in the form of large oil and gas reserves have raised demand for the deepwater drilling services that Transocean, Seadrill, and Ensco all deliver to their clients. Can Transocean move past the lingering impacts from the Deepwater Horizon incident and get its earnings moving in the right direction again? Let's take an early look at what's been happening with Transocean over the past quarter and what we're likely to see in its report.

Stats on Transocean

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$2.48 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Transocean get earnings growing again?
In recent months, analysts have dropped their estimates on Transocean earnings, cutting more than a dime per share from their third-quarter projections and 8% -10% from their calls for the full 2013 and 2014 years. The stock has managed to hold its own, remaining flat compared to early August's levels.

Transocean gave investors some mixed results in its second-quarter report. The company largely met earnings expectations, with modest adjusted net income and revenue growth from the year-ago quarter. As the company works to cut costs, Transocean is also spending on new ultra-deepwater drillships and generating substantial backlog growth.

Lately, though, Transocean has earned the ire of many investors even as Seadrill has gotten more popular. Transocean has warned about a possible slowdown in the deepwater industry in the short run. That led analysts to downgrade both Transocean and Ensco, but Seadrill has largely specialized in the ultra-deepwater segment which is holding up better than traditional deepwater opportunities.

In order to take maximum advantage of the most favorable deepwater trends, Transocean sold off most of its jack-up fleet last year, and in the aftermath of that move, competitor Noble (NYSE:NE) has seized the opportunity to take advantage. Noble saw jack-up rig utilization rise to 94% and dayrates climb more than 15% in its most recent quarter. But the opportunity to concentrate on deepwater and ultra-deepwater drilling is too good for Transocean to pass up, with dayrates more than five times what jack-up rigs are offering even after that substantial rise.

Still, Transocean has a competitive disadvantage against Seadrill in that Transocean's fleet is relatively old. The company has been doing its best to build new ultra-deepwater vessels quickly, but until those come online, Seadrill and other competitors with newer equipment will have the flexibility to accept certain challenging jobs that Transocean won't.

In the Transocean earnings report, watch to see how the company compares to Seadrill and Ensco as it seeks to move deeper into the ultra-deepwater segment. Ideally, Transocean will be able to give more positive guidance toward a brighter future ahead.

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