Continuing its impressive march higher this year, offshore contract drilling services specialist Transocean (NYSE:RIG) popped sharply higher on Tuesday. Earlier this morning, management announced that it received an award from an independent operator for a 1,080-day contract regarding a high-specification seventh-generation, ultra-deepwater drillship in the Gulf of Mexico offshore Mexico. Following the disclosure, RIG stock immediately soared, gaining about 7% in the late afternoon hours.
According to the accompanying press release, “[t]he contract will contribute approximately $518 million in backlog, excluding revenue for mobilization and demobilization, and is expected to commence between the fourth quarter of 2025 and second quarter of 2026.” Also, the statement noted that the contractual day rate is subject to a semi-annual cost adjustment mechanism. No additional services are stipulated under the contract.
“This award is especially encouraging on numerous fronts,” remarked Transocean CEO Jeremy Thigpen. “The fact that our customers are securing rigs well in advance of their programs and committing to long-term contracts clearly demonstrates the tightness of the market.”
Presently, Transocean owns or has partial ownership interests in and operates a fleet of 37 mobile offshore drilling units. The inventory consists of 28 ultra-deepwater floaters and nine harsh environmental floaters. As well, Transocean holds a noncontrolling ownership interest in a firm building an ultra-deepwater drillship.
RIG Stock Rides a Recovery Wave
With Tuesday’s impressive performance, RIG stock has nearly doubled in market value so far this year. Over the trailing one-year period, shares gained over 200%, exceeding even the skyrocketing of Nvidia (NASDAQ:NVDA) during the same frame. Naturally, the upshot represents a welcome change of pace from the doldrums of the Covid-19 pandemic.
As Barron’s pointed out, offshore oil drillers ranked among the worst investments of 2020. Back then, oil prices plummeted, and demand seemed destined to fade away due to myriad social disruptions. Now, the sector represents one of Wall Street’s hottest. Even better, RIG stock is but one of many beneficiaries riding a robust recovery wave.
At one point, the cessation of vehicular traffic forced a pivot toward renewable energy. In turn, big oil firms reduced their spending on drilling in difficult-to-access locales. Although affected enterprises took rigs out of commission, many drillers eventually filed for bankruptcy in 2021 and 2022, wiping out shareholders in the process.
Still, names like Noble (NYSE:NE), Valaris (NYSE:VAL) and Seadrill (NYSE:SDRL) emerged from bankruptcy with restructured balance sheets. Now, with larger integrated oil firms striving for traction, RIG stock and its peers are shifting into a higher gear.
Fundamentally, Barron’s stated the quiet part out loud. Despite the green pivot, investors realize that crude oil will undergird global commerce for decades to come.
Why It Matters
Unsurprisingly given the broader enthusiasm, Wall Street analysts within the past three months peg RIG stock as a consensus “moderate buy.” However, because of recent robust trades, the experts’ average price target lands at $8.14. At the moment, this target implies more than 4% downside risk.