Offshore drilling giant Transocean Ltd. RIG declared contract termination of its drillship Discoverer Americas by Statoil ASA STO ahead of the scheduled time. An unfavorable business scenario following weak oil and rig oversupply led to the event. After the announcement, Transocean fell afterhours by almost 2% on the NYSE.
Since 2009, the dynamic positioning drillship Discoverer Americas was on contract with the Stavanger, Norway-based integrated energy firm. The agreement was supposed to get over by May, next year.
In details, the events that led to the abrupt termination are an oversupplied rig market and persistent low oil prices. With constant weak crude prices for more than a year, the upstream or the integrated energy companies are getting little incentive to carry on their exploration and production activities. This is because they are not being able to sell crude at attractive prices and hence are hiring less rigs for drilling activities, leading to many rig contract cancellations. Excess supply of rig in such a situation has added to the concerns.
Most importantly, this is not the first time that Statoil has terminated a rig contract. The company also cancelled numerous rig contracts in the past.
Switzerland-based Transocean is the world’s largest offshore drilling contractor and leading provider of drilling management services. The company offers unmatched levels of earnings and cash flow visibility, given its technologically advanced and versatile offshore drilling fleet, strong backlog and considerable pricing power.
Statoil, on the other hand, involves in both upstream and downstream operations − the activities involve exploration, production, transportation, refining and marketing of petroleum along with products derived from petroleum.
Currently, Transocean carries a Zacks Rank #2 (Buy) and Statoil has a Zacks Rank #3 (Hold).
Some other favorably-placed players in the energy sector are Energy Transfer Equity LP ETE and Ocean Rig UDW Inc. ORIG. Both stocks sport a Zacks Rank #1 (Strong Buy).
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