Offshore driller Transocean Ltd. (NYSE:RIG) has announced the departure of its CEO and President Steven Newman amid the downturn in the industry led by the 50% drop in oil prices since mid-2014.
The Switzerland based company said that the five-year term for Newman will come to an end on Monday. Newman’s tenure was also marred by Transocean’s involvement in the Gulf of Mexico deep-water oil disaster which led to the death of 11 workers while millions of barrels of oil were spilled into the ocean. As the company hunts for a replacement, Ian Strachan, Transocean’s chairman will serve as the interim chief executive.
The slump in oil prices has come on top of the oversupply of the drilling rigs in the industry which exerted a downward pressure on day-rates, which underpins offshore drillers’ revenues. As per estimates from Raymond James, 2014 was the second worst year for the offshore drilling industry, in terms rig years' worth of contracts. Last year, the ultra-deep-water drilling rigs were contracted at the average rate of $400,000 a day, significantly lower than the levels of $700,000 a day during 2012-13.
Low oil prices have forced energy companies, such as Chevron (NYSE:CVX) and Pioneer Natural Resources (NYSE:PXD), to slash their capital expenditure budgets. The oil producers are expected to significantly scale back their offshore exploration and production activity. That’s bad news for offshore drillers, such as Transocean, Seadrill (NYSE:SDRL) and Diamond Offshore (NYSE:DO), as these oil producers are some of their major customers. This, coupled with the supply of new rigs in the near future, will continue to drag day-rates lower.
Transocean reported a loss of $2.2 billion in the third quarter, which included a $2.8 billion write-off against goodwill and other assets. Moreover, analysts are expecting a challenging future. Credit Suisse has recently downgraded Transocean’s stock to Underperform from Neutral and have set a $12 price target. Meanwhile ratings agency Fitch has revised Transocean’s outlook to Negative and expect negative free cash flows of $1.1 billion in 2015. Analysts at Jefferies and Raymond James have also downgraded the stock.