Transocean Ltd. (NYSE:RIG) reported net income for the three months ended December 31, 2008 of $800m, or $2.50 per diluted share. Revenues for the fourth quarter 2008 totaled a record $3.3b. The results compare to net income of $1.05b, or $4.17 per diluted share, for the three months ended December 31, 2007. For the three months ended December 31, 2007, revenues were $2.1b.
Fourth quarter 2008 results were adversely impacted by certain net charges, after tax, totaling $385m, or $1.19 per diluted share, as follows:
• $208m of goodwill and other impairments related to drilling management services
• $97m of write-downs to fair market value for the GSF Arctic II and GSF Arctic IV semi-submersible rigs held for sale
• $46m for depreciation, depletion and amortization expense resulting from an adjustment to the useful life assigned to certain rigs acquired in the merger with GlobalSantaFe Corporation (the “Merger”)
• $20m of discrete tax items, write-downs of oil and gas properties and costs related to the Merger
• $17m of write-offs for uncollectible accounts receivable associated with the Sedco 712 rig contract after the operator announced it had been placed into administration (a form of bankruptcy protection under U.K. law)
• $18m for materials and supplies obsolescence, and
• Partially offset by $21m of income related to the sales contract termination fee on the Transocean Nordic and income from the TODCO tax sharing agreement.
Net income of $1.05b for the three months ended December 31, 2007 included after-tax income of $194m, or $0.77 per diluted share, resulting primarily from the sale of the Peregrine I drillship and benefits from discrete tax items (which were partially offset by Merger-related costs and losses on the early retirement of debt). On November 27, 2007, Transocean Inc. reclassified its ordinary shares into cash and shares (the “Reclassification”) in connection with the Merger. Reported results for the fourth quarter and full year 2007 included approximately one month from GlobalSantaFe's operations and the impact of recording GlobalSantaFe's assets and liabilities at fair market value as required by generally accepted accounting principles.
Diluted earnings per share for the fourth quarter 2007 is based on a weighted average diluted share count of 254 million shares, which included the effect of restating the historical share count for the Reclassification. The weighted average diluted share count for the fourth quarter 2007 without restatement would have been 309 million shares.
For the year ended December 31, 2008, net income totaled $4.2b, or $13.09 per diluted share, on revenues of $12.7b. Net income for the twelve months ended December 31, 2008 included after-tax charges of $401m, or $1.24 per diluted share, resulting primarily from the fourth quarter items listed above, in addition to a loss on short-term investments and a loss from the early retirement of debt.
For 2007, net income was $3.1b, or $14.14 per diluted share, on revenues of $6.4b. Net income for the year ended December 31, 2007 included after-tax income of $563m relating to payments received under the TODCO tax sharing agreement, rig sales and discrete tax items.
On December 18, 2008, Transocean completed the change of place of incorporation of its holding company from the Cayman Islands to Switzerland (the “Redomestication”). As a result of the Redomestication, Transocean Ltd. succeeded Transocean Inc. as the holding company for the Transocean group of companies. The financial results disclosed herein are provided on a consolidated basis for the Transocean group of companies.
Revenues for the three months ended December 31, 2008 increased to $3.3b, compared to revenues of $3.2b during the three months ended September 30, 2008. The $78m quarter-to-quarter increase in total revenues included $131m of higher contract drilling revenues, reflecting an increase in average dayrates and a decrease in out-of-service time for planned shipyards. A $43m decrease in other revenues partially offset these increases and resulted primarily from decreases in non-drilling activities. The average dayrate for the fleet increased 3.8 percent from $242,200 in the third quarter to $251,500 in the fourth quarter.
Operating and maintenance expenses totaled $1.4b for the fourth quarter 2008, down $18m or 1.3 percent, compared to $1.4b for the prior quarter. The quarter-to-quarter reduction in operating and maintenance costs was primarily the result of non-drilling cost reductions of $46m and a $17m decline in maintenance and shipyard costs, partially offset by $23m of bad debt expense related to the Sedco 712 customer receivable and $21m of charges related to obsolescence of materials and supplies.
Depreciation, depletion and amortization expense increased to $396m in the fourth quarter 2008 versus $336m for the third quarter 2008. The $60m quarter-to-quarter increase includes $46m for adjustments to the depreciable lives of certain rigs acquired in the Merger, a $6m write-down of oil and gas properties and $8m of other miscellaneous items.
General and administrative expenses were $59m for the fourth quarter 2008 compared to $46m in the prior quarter. The $13m increase was due, in part, to $8m of additional professional fees, including $4m related to the Redomestication and $4m of additional Merger-related costs.
For the fourth quarter 2008, field operating income (defined as revenues less operating and maintenance expenses) increased 5.4 percent to $1.9b compared to $1.8b for the third quarter 2008. The increase was primarily due to the higher revenues and reduced operating and maintenance expenses, as discussed above.
Interest expense, net of amounts capitalized for the fourth quarter 2008, increased to $121m compared to $100m in the third quarter 2008. The increase included $11m from higher interest rates and $10m from reduced capitalized interest. As of December 31, 2008, total debt was $14.2b, a decrease of $597m from September 30, 2008.
Cash flow from operating activities decreased to $1.2b for the fourth quarter 2008 compared to $1.3b for the third quarter 2008. For the full year 2008, cash flow from operating activities totaled $4.9b compared to $3.1b for the full year 2007.
Transocean’s Annual Effective Tax Rate, which excludes various discrete items, for each of the fourth quarter 2008 and the full year ended December 31, 2008 was 15.8 percent and 14.0 percent, respectively. The Effective Tax Rate for each of the fourth quarter 2008 and the full year ended December 31, 2008 was 20.8 percent and 15.0 percent, respectively. Transocean’s Effective Tax Rate for both periods reflects the impact of various discrete items primarily related to the tax effect of the impairment losses that are non-deductible for tax purposes, largely offset by changes in estimates.