Deepwater Horizon Testimony Is Making Shareholders Wary of Next Week’s Earnings

Pamela is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Transocean (NYSE: RIG) will be coming out with their earnings report next week.  Unfortunately for the company, the Deepwater Horizon oil spill that occurred in the Gulf of Mexico in 2010, which also happens to be the petroleum industry’s largest “accidental” marine oil spill in history, is in the forefront again.   

A new trial has recently begun (Feb. 26, 2013) in New Orleans.  Supervisors from Transocean and BP (NYSE: BP) are being blamed for improperly interpreting pressure test results from the Macondo well; this resulted in the deaths of 11 oil rig workers and an unfathomably large oil spill, with expected repercussions on the Gulf of Mexico ecology for years to come.  The accusation against these managers is that there would have been no oil blowout if the pressure test results were interpreted correctly. 

U.S. District Judge Carl Barbier will be listening closely and deciding on who is responsible for the damages and how much the responsible parties will have to pay.  While Transocean and BP are considered the primary responsible parties, there are other organizations that may also be held accountable.  Halliburton (NYSE: HAL), who recently lifted their dividend by 39%, is the organization responsible for the well’s cement work. Hence, they will also be placed under the microscope in this trial.

Consequently, BP, Halliburton and Transocean stock prices have decreased.  Is this reason to panic?  If you think like a Fool, you will study this information, take your time to process it, and not panic. 

Aside from the trial, what should we be thinking about for next week’s Transocean earnings report?  If we take the 5 and 3 approach, where we look at 5 positive and 3 negative developments, we may obtain a broader view about the company. 

3 Negatives:

We will count the news about the trial as a negative point.

Another negative is that one of their offshore oil rigs, the GSF Explorer, is currently idle.

The third negative is that Transocean’s board cut out dividends in 2012 until further notice, and there are no indications of this decision changing in 2013.

As for the positives:

Ranking

Transocean, Inc. remains the second largest offshore oil drilling contractor in the world, second only to Nabors Industries (NYSE: NBR).

Fleet Update

The value of Transocean's extensions and new contracts for the past month is approximately $530 million.  This includes a 3 year contract for North Sea work for $380,000 daily using their Sedco 712 and one year of Nigeria offshore work for $311,000 daily for their Sedneth 701. 

New World Record

Transocean’s ultra-deepwater drillship, the Dhirubhai Deepwater KG1, recently set a new world record.  This record was set off of India’s east coast, when the Dhirubhai Deepwater KG1 drilled down into 10,385 feet (3,165 meters) of water, the deepest water depth for an offshore drilling rig to date.   

New High-Specification Jackups

Transocean recently celebrated the naming of two newly built High-Specification Jackups: the Transocean Siam Driller and Transocean Andaman. According to their website, this marks another milestone for their long term relationship with Chevron (NYSE: CVX) in the Gulf of Thailand. Not only that, but these rigs, as well as a third that is still being built, the Transocean Ao Thai, already have long-term contracts with Chevron.

Trends/Cyclical Patterns

Transocean’s actual and expected returns chart for the past two years has been very interesting, as every other earnings report is completely the opposite, possibly indicating a cyclical pattern.  In September of 2011, expected earnings were higher than actual earnings. In December of 2011, it was the reverse (actual was higher than expected).  This pattern has been consistent through the end of 2012, which ended with expected returns exceeding actual returns.  This is an interesting pattern, and if you had no other information, you might expect actual earnings to exceed expected earnings next week. That being said, I am just reporting the observation of a pattern here, nothing more.   

Foolish Bottom Line

Will the trial news overshadow Transocean’s earnings report, even if it exceeds expectations?  Only time will tell.  In the meantime, consider the 5 and 3, keep up your Foolish attitude and invest for the long term in solid businesses that you have done your homework on and you believe in.  Avoid investor’s biggest mistakes and don’t panic! Hop off that emotional roller coaster. Think long and stay strong! 

Fool On!


This Fool does not own shares in any of these organizations.

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