The slowdown in demand for drilling rigs hit Transocean (RIG -4.71%) in the fourth quarter and resulted in a $200 million drop in revenue sequentially to $2.33 billion. Fleet utilization was just 75% in the quarter and revenue efficiency was 91.7%. The company reported results Wednesday.

Net income also fell sequentially from $321 million to $233 million, or $0.64 per share. After adjusting for one-time items, net income was $267 million, or $0.73 per share, which was in line with Wall Street's expectations.  

What's most concerning is that Transocean's deepwater floater utilization fell from 83% in the third quarter to 62% in the fourth quarter. Ultra-deepwater floaters, which drill in more than two miles of water, delivered a decent 87% use rate that was down only slightly from 90% in the previous quarter.

The lower demand recently for drilling rigs has been seen across the industry. In addition, Transocean's deepwater fleet is older than certain competitors, making it less attractive for some new drilling projects. I think this is a bump in the road for drillers, as more than half of the new oil discoveries worldwide are in deepwater. However, overcapacity is something to keep an eye on, so watch utilization rates going forward for signs of whether Transocean is still healthy over the long term.