Transocean Ltd. Reports Second Quarter 2016 Results

OREANDA-NEWS. August 04, 2016. Transocean Ltd. (NYSE: RIG) today reported net income attributable to controlling interest of \\$77 million, \\$0.21 per diluted share, for the three

• \\$38 million, \\$0.10 per diluted share, in net gains on early debt retirements; and
• \\$5 million, \\$0.01 per diluted share, associated with gains on rig disposals and discontinued operations.

These net favorable items were partially offset by:

• \\$18 million, \\$0.04 per diluted share, related to the loss on impairment of assets;
• \\$7 million, \\$0.02 per diluted share, in restructuring costs including employee severance; and
• \\$5 million, \\$0.01 per diluted share, in discrete tax expense.

After consideration of these net favorable items, second quarter 2016 adjusted net income was \\$64 million, or \\$0.17 per diluted share.

For the three months ended June 30, 2015, the company reported a net income attributable to controlling interest of \\$342 million, or \\$0.93 per diluted share. The second quarter of 2015 included net unfavorable items of \\$66 million, \\$0.18 per diluted share, associated with losses on the impairment of the midwater floater asset group and other assets classified as held for sale, partially offset by Macondo-related settlements and insurance recoveries. After consideration of these net unfavorable items, adjusted net income was \\$408 million, or \\$1.11 per diluted share.

Contract drilling revenues for the three months ended June 30, 2016, decreased \\$193 million sequentially to \\$918 million due primarily to lower rig utilization⁽³⁾ and dayrates. The decrease was partially offset by contributions from the newbuild, ultra-deepwater drillships Deepwater Proteus and Deepwater Thalassa and the reactivated harsh-environment floater Henry Goodrich, and higher revenue efficiency.

Other revenues decreased \\$205 million sequentially to \\$25 million due primarily to significant first quarter 2016 early contract termination fees.

Operating and maintenance expense was \\$500 million, down from \\$665 million in the previous quarter. The decrease was due largely to reduced activity and lower stacking costs. The quarter was also favorably impacted by a decline in reactivation costs associated with the Henry Goodrich, and lower shore-based expenses.

General and administrative expense was \\$42 million, down from \\$43 million in the first quarter of 2016.

Depreciation expense was \\$225 million, compared with \\$217 million in the previous quarter. The increase was primarily associated with the commencement of operations of the newbuild drillships.

The Effective Tax Rate⁽⁴⁾ was 16.2 percent, down from 22.4 percent in the first quarter of 2016. The Annual Effective Tax Rate was 16.3 percent, down from 22.8 percent in the previous quarter. The decrease was due largely to changes in adjusted pre-tax income and the mix of operating results from certain jurisdictions. As a result, income tax expense included a benefit of \\$22 million, \\$0.06 per diluted share, to reflect the decrease in the Annual Effective Tax Rate to 21.5 percent for the six months ended June 30, 2016, from 22.8 percent in the previous quarter.

Interest expense, net of amounts capitalized, was \\$95 million, compared with \\$89 million in the prior quarter. Capitalized interest decreased \\$9 million sequentially to \\$40 million due primarily to the commencement of operations of the newbuild drillships. Interest income was \\$4 million, compared with \\$6 million in the prior quarter.

Cash flows from operating activities were \\$207 million, compared with \\$631 million in the prior quarter. The decline was largely related to early contract termination fees that primarily impacted the first quarter of 2016.

Capital expenditures totaled \\$458 million, up from \\$368 million in the prior quarter. The increase was primarily associated with the company's newbuild program. Capital expenditures in the second quarter of 2016 included shipyard payments primarily on the contracted newbuild, ultra-deepwater drillships Deepwater Pontus and Deepwater Conqueror.

"I am very pleased with the company's second quarter operating and financial results," said President and Chief Executive Officer Jeremy Thigpen. "Thanks to the continued focus and commitment of the entire Transocean team, we delivered excellent safety and uptime performance for our customers, resulting in 96.5 percent quarterly revenue efficiency. We also continued to improve our cost structure through the streamlining of both our organization and our processes." 

"In addition to the strong operating results, we further strengthened our balance sheet, and enhanced our liquidity position, by closing a \\$1.25 billion note offering and simultaneous tender to repurchase debt," said Executive Vice President and Chief Financial Officer Mark Mey. "We also announced the merger agreement to acquire the remaining interest in Transocean Partners which will improve our liquidity position going forward."

Additionally, Thigpen said, "though we continue to face market headwinds, the combination of our industry-leading backlog, exceptional operating performance, and solid financial position ensures that we will maintain our position as the industry's leading deepwater driller."

Non-GAAP Financial Measures

All non-GAAP financial measure reconciliations to the most comparative GAAP measure are displayed in quantitative schedules on the company's website at: www.deepwater.com.

About Transocean

Transocean is a leading international provider of offshore contract drilling services for oil and gas wells. The company specializes in technically demanding sectors of the global offshore drilling business with a particular focus on deepwater and harsh environment drilling services, and believes that it operates one of the most versatile offshore drilling fleets in the world.

Transocean owns or has partial ownership interests in, and operates a fleet of 60 mobile offshore drilling units consisting of 29 ultra-deepwater floaters, seven harsh-environment floaters, four deepwater floaters, 10 midwater floaters and 10 high-specification jackups. In addition, the company has five ultra-deepwater drillships and five high-specification jackups under construction or under contract to be constructed.

For more information about Transocean, please visit: www.deepwater.com.

Conference Call Information

Transocean will conduct a teleconference starting at 9 a.m. EDT, 3 p.m. CEST, on Thursday, August 4, 2016, to discuss the results. To participate, dial +1 913-981-5519 and refer to confirmation code 3940977 approximately 10 minutes prior to the scheduled start time.

The teleconference will be simulcast in a listen-only mode over the Internet and can be accessed on Transocean's website, www.deepwater.com, by selecting "Investor Relations/Overview." Supplemental materials that may be referenced during the teleconference will be posted to Transocean's website and can be found by selecting "Investor Relations/Financial Reports."

A replay of the conference call will be available after 12 p.m. EDT, 6 p.m. CEST, on August 4, 2016. The replay, which will be archived for approximately 30 days, can be accessed at +1 719-457-0820, passcode 3940977, and PIN 9876. The replay will also be available on the company's website.

Forward-Looking Statements

The statements described in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements contain words such as "possible," "intend," "will," "if," "expect," or other similar expressions. Forward-looking statements are based on management's current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, estimated duration of customer contracts, contract dayrate amounts, future contract commencement dates and locations, planned shipyard projects and other out-of-service time, sales of drilling units, timing of the company's newbuild deliveries, operating hazards and delays, risks associated with international operations, actions by customers and other third parties, the future prices of oil and gas, the intention to scrap certain drilling rigs, the benefits, effects or results of the anticipated merger with Transocean Partners LLC, the failure to obtain Transocean Partners LLC unitholder approval for the merger and the satisfaction of other conditions to the consummation of the merger and other factors, including those and other risks discussed in the company's most recent Annual Report on Form 10-K for the year ended December 31, 2015, and in the company's other filings with the SEC, which are available free of charge on the SEC's website at: www.sec.gov. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur, or which we become aware of, after the date hereof, except as otherwise may be required by law. All non-GAAP financial measure reconciliations to the most comparative GAAP measure are displayed in quantitative schedules on the company's website at: www.deepwater.com.

This press release, or referenced documents, do not constitute an offer to sell, or a solicitation of an offer to buy, any securities, and do not constitute an offering prospectus within the meaning of article 652a or article 1156 of the Swiss Code of Obligations. Investors must rely on their own evaluation of Transocean and its securities, including the merits and risks involved. Nothing contained herein is, or shall be relied on as, a promise or representation as to the future performance of Transocean.

Notes

(1) Annual Effective Tax Rate is defined as income tax expense from continuing operations, excluding various discrete items (such as changes in estimates and tax on items excluded from income before income taxes), divided by income from continuing operations before income tax expense excluding gains and losses on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."

(2) Revenue efficiency is defined as actual contract drilling revenues for the measurement period divided by the maximum revenue calculated for the measurement period, expressed as a percentage.  Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding amounts related to incentive provisions. See the accompanying schedule entitled "Revenue Efficiency."

(3) Rig utilization is defined as the total number of operating days divided by the total number of rig calendar days in the measurement period, expressed as a percentage. See the accompanying schedule entitled "Utilization."

(4) Effective Tax Rate is defined as income tax expense for continuing operations divided by income from continuing operations before income taxes. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."

Analyst Contacts:
Bradley Alexander
+1 713-232-7515

Diane Vento
+1 713-232-8015

Media Contact:
Pam Easton
+1 713-232-7647

TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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FLEET OPERATING STATISTICS

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FLEET OPERATING STATISTICS (continued)

3. Revenue efficiency is defined as actual contract drilling revenues for the measurement period divided by the maximum revenue calculation for the measurement period, expressed as a percentage.  Maximum revenue is defined as the greatest amount of contract drilling revenues the drilling unit could earn for the measurement period, excluding amounts related to incentive provisions.