Offshore drilling giant Transocean Ltd. RIG declared the termination of the contract for its drillship Polar Pioneer by Europe’s largest oil company Royal Dutch Shell plc RDS.A. The contract was scheduled for expiration in Jul 2017.
The harsh environment semisubmersible rig was set for Shell’s Alaska Arctic drilling. But after the oil giant wrapped up its Arctic exploration program in September, the drillship’s contract ended up being abruptly terminated. The drilling contractor will be compensated for the unexpected event with lump sum payments.
Now let’s go to the story of Shell Arctic retreat. Although Shell had previously announced its revised Arctic drilling plan for six prospective wells, it was incurring high operating expenses and facing considerable regulatory hurdles concerning environmental issues. Eventually, sustaining operations in the region did not turn out feasible, especially with the extended slump in oil price.
Coming to Transocean, this is not the first rig contract cancellation that the driller faced. Earlier this month, the drilling player declared the contract termination for its drillship Discoverer Americas by integrated energy firm Statoil ASA STO. The reason was an oversupplied rig market and persistently low commodity prices.
Switzerland-based Transocean is the world’s largest offshore drilling contractor and a 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.
Shell, on the other hand, is an integrated energy firm with a strong and diversified portfolio of development projects that offer attractive long-term opportunities.
Presently, Transocean carries a Zacks Rank #2 (Buy) and Shell has a Zacks Rank #5 (Strong Sell).
A better-ranked player in the energy sector is Energy Transfer Equity LP ETE. The stock sports a Zacks Rank #1 (Strong Buy).
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