Source: Transocean. 

Transocean (NYSE:RIG) owns and operates one of the largest offshore contract drilling fleets in the world, encompassing 91 vessels if we include vessels under construction. The company needs to invest a lot of money to keep its vessels operational, especially considering that the average age of its rigs is the third-highest in the industry. Let's look at how the company is doing at investing in and maintaining its fleet. 

When physics meets economics 
Transocean, like any other company, faces many obstacles as it strives to grow profitability. One that we don't talk about much is the second law of thermodynamics. That law basically says everything breaks down, including Transocean's fleet. This requires the company to invest capital to maintain its existing vessels and build replacement rigs. We call these investments maintenance capital.

Key here is making sure Transocean is spending enough capital to offset depreciation or amortization on its cash flow statement. As long as the company is at least investing to match depreciation it should be able to maintain its current pace of operations. However, as investors, we want more than just maintaining the status quo, we want growth. We want to see Transocean invest more into its business than it needs to cover depreciation. We call this growth capital expenditures, which can take the form of capital spent on the cash flow statement, research and development, or even acquisitions.

With that as our backdrop, let's see how Transocean has done in managing its fleet over the past five years. Using data provided by S&P Cap IQ, along with a little spreadsheet magic, I came up with the following chart.

Data provided by S&P Cap IQ. Chart prepared by author.

What we see is that, other than in 2011, Transocean invested more in capex than it took in depreciation and amortization charges on its cash flow statement. In fact, the company invested $3.6 billion more than was required to simply maintain its assets. This tells us that neither its fleet, nor its growth, are in danger.

But is danger lurking ahead?
All that being said, Transocean's fleet is aging, and at some point the company will need to replace its vessels. This isn't just a concern for Transocean -- the industry as a whole has 160 floaters and 216 jackups that are more than 30 years old, as shown on the following slide.

Source: Transocean Investor Presentation.

The industry needs to build hundreds of future drilling rigs just to maintain its current rig count, as older rigs are at risk of being replaced with newer, higher-specification drilling rigs. Transocean actually sees this as an opportunity to refresh its fleet ahead of that curve. As this next slide notes, the company plans to completely unload its fleet of deepwater and midwater drilling rigs and concentrate on ultra-deepwater, harsh environment, and high-spec jackups.

Source: Transocean.

This is an important transition for the company, as its current fleet of deepwater rigs are 34.3 years old on average (as fellow Fool Alex Planes recently pointed out). By eventually offloading replacing these older rigs with newer ultra-deepwater rigs the company will have a much stronger fleet in the future. While that will cost Transocean some money, the company has shown it isn't afraid to invest in its business to grow its fleet, though not with a focus on growing the size of its fleet, but rather its superiority.

Transocean's fleet is not in danger of falling apart. The company is investing more than enough capital to offset depreciation to ensure that its current fleet can maintain operations. It is also investing heavily in new vessels, which will slowly bring down the age of its fleet and ensure that the company can meet the demands of the ever-changing offshore rig marketplace.