Why Transocean LTD (NYSE: RIG) stock is trading subdued

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Transocean LTD (NYSE: RIG) stock lost over 0.5% in the pre market session on 19th Feb, 2019 (Source: Google finance) after the company in the fourth quarter of FY 18 has reported the adjusted net loss of $171 million, $0.34 per diluted share, excluding $71 million of net unfavorable items. This compares with adjusted net income of $30 million, $0.06 per diluted share, in the prior quarter. The company’s adjusted normalized EBITDA margin was $260 million or 34%, compared with $341 million or 42% in the prior quarter. Cash flows from operating activities were $238 million, up from $214 million in the prior quarter primarily due to the collection of certain receivables and advance payment for a farmout contract. Fourth quarter 2018 capital expenditures of $44 million were related to the company’s newbuild drillships along with capital expenditures relating to asset and inventory management systems, reactivation of one rig and capital upgrades for certain rigs in the existing fleet. This compares with $48 million in the previous quarter.

During the fourth quarter, total contract drilling revenues were $748 million, compared with $816 million in the third quarter of 2018 due to lower utilization for the company’s ultra-deepwater and harsh environment fleet. Additionally, fourth quarter results were negatively impacted by unexpected weather-related downtime on two of the harsh environment rigs off the coast of Canada resulting in approximately $21 million in lost revenue. Partially offsetting these decreases was a $15 million increase in revenue from three working rigs acquired as part of the Ocean Rig acquisition in December. Contract drilling revenues included customer early termination fees of $12 million on the Discoverer Clear Leader in the fourth quarter down from $37 million in the prior quarter. The fourth quarter also included a non-cash revenue reduction of $34 million from contract intangible amortization associated with the Songa and Ocean Rig acquisitions. The third quarter non-cash revenue reduction from contract intangible amortization was $29 million. Contract backlog was $12.2 billion as of the February 2019 Fleet Status Report.

Moreover, interest expense, net of amounts capitalized, was $165 million, compared with $160 million in the prior quarter. The increase was due to the senior notes issued during the fourth quarter of 2018 partially offset by senior secured term loans assumed in the Songa acquisition and retired in the third quarter.

In the fourth quarter, the company acquired Ocean Rig in a cash and stock transaction valued at approximately $2.5 billion

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