Transocean (NYSE:RIG) reported second-quarter results that exceeded its prior revenue and cost guidance, supported by 98% fleet uptime, contract additions and lower-than-expected operating expenses. The offshore drilling contractor also said it expects to close its acquisition of Valaris in the fourth quarter, pending remaining regulatory approvals.
Chief Executive Officer Keelan Adamson said the company generated an adjusted EBITDA margin of 32% during the quarter and reduced net debt to about $4.3 billion at quarter-end, down nearly $1.7 billion over the past 18 months.
Second-Quarter Financial Performance
Chief Financial Officer Thad Vega said second-quarter revenue totaled $966 million, at the upper end of the company’s guidance range. The result reflected the Deepwater Skyros working for the full quarter, one month longer than forecast, as well as additional recharge revenue and contractual cost-escalation provisions for certain rigs.
Operations and maintenance expense was $608 million, while capital expenditures were $24 million, both below the low end of Transocean’s guidance ranges. Vega attributed the lower spending primarily to the timing and deferral of maintenance and out-of-service expenditures.
General and administrative expense was $56 million, above guidance, but included approximately $11 million of Valaris acquisition-related costs. Excluding those costs, G&A was approximately $45 million, Vega said.
- Adjusted EBITDA was $312 million, representing a 32% margin.
- Free cash flow totaled $212 million, or a 22% margin, aided by operating performance and favorable working-capital changes.
- Unrestricted cash rose sequentially to about $510 million from $330 million.
- Total liquidity, including the undrawn revolving credit facility, was about $1.3 billion.
- Trailing 12-month net debt to EBITDA, including restricted cash primarily designated for debt repayment, improved to 2.8 times from 5.2 times at the start of 2025.
Transocean plans to call the remaining $200 million principal amount of its 8% Deepwater Aquila notes at the end of the third quarter, after the next reduction in the call premium. Vega said the early retirement is expected to save about $22 million in interest expense through maturity. The company expects to finish 2026 with less than $4.8 billion in gross debt and total liquidity of $1.25 billion to $1.35 billion.
Vega said Transocean increased its 2026 revenue guidance to reflect contract extensions for rigs previously expected to roll off this year and the Deepwater Proteus contract. Full-year cost guidance was also increased slightly due to the additional activity, while full-year G&A guidance remained unchanged at $170 million to $180 million, excluding transaction-related costs.
Backlog Additions and Fleet Coverage
Adamson said Transocean added about $300 million of backlog during the quarter for assets with near-term availability. The amount excludes approximately $1 billion in prospective backlog awarded by Equinor that remains subject to partner approval, which the company expects in the third quarter.
Including the pending Equinor work, Transocean has added $3.1 billion in contracts so far this year. All active drillships other than the KG2, which is being bid on multiple opportunities, are under contract or mobilizing to new work, according to Adamson. The company’s active drillship coverage stands at 94% for the remainder of 2026 and 81% for 2027.
In the U.S. Gulf of Mexico, the Deepwater Conqueror was extended with its existing customer at the same rate, while the Deepwater Proteus secured work and began operations after a brief idle period. Both rigs are expected to continue working in the region into early 2027.
The Deepwater Skyros was extended for appraisal work tied to a recently announced discovery in Ivory Coast. The additional work is expected to enable a direct transition to its next Australia contract with limited off-hire time for preparation and mobilization.
Harsh-Environment Market and Global Demand
Transocean cited growing demand for high-specification, harsh-environment assets, particularly in Norway. The Transocean Norge received a five-well contract from Harbour Energy, adding about $149 million of backlog and expected to begin in the first quarter of 2028.
The company also reached an agreement with Equinor for seven years of work on the Transocean Enabler, Transocean Encourage and Transocean Endurance. The Endurance will be relocated from Australia to Norway. Adamson said the base day rate on those contracts, excluding third-party services, will likely exceed $400,000 per day at commencement due to escalation provisions.
Transocean said the Transocean Spitsbergen is now its only harsh-environment semi-submersible available in Norway before 2029, with its current contract ending in late 2027. In Australia, the Transocean Equinox received a two-well Santos contract expected to begin in the second quarter of 2027, adding approximately $36 million of backlog.
Management said it expects deepwater utilization to approach 100% by the end of 2027, citing nearly 100 rig years of awards year to date, according to S&P Petrodata, and roughly 40 open tenders representing another 75 to 80 rig years.
Adamson said Africa is becoming a major source of incremental demand, with the regional rig count projected to rise from roughly 15 units to at least 20 to 25 units over the next 18 months. Transocean also pointed to prospective multi-year activity in Ghana, Mozambique, Namibia and Nigeria, as well as expanding potential demand in Southeast Asia and India beginning in 2027.
During the question-and-answer session, Chief Commercial Officer Roddie Mackenzie said Africa represented the largest growth region in the company’s outlook, with more than 12 prospective multi-year developments requiring rigs and at least six long-term tenders underway.
Mackenzie said contract activity is being supported by operators’ long-term project economics rather than elevated commodity prices. He said the more than $3 billion of Transocean contract awards this year were based on project breakevens in the $30-to-$40-per-barrel range.
Valaris Transaction Progress
Transocean continues to target a fourth-quarter close for its proposed Valaris acquisition. The companies remain separate while integration planning advances, Adamson said.
The company received clearance from the Committee on Foreign Investment in the United States in June. It has also received approvals from Saudi Arabia, Trinidad and Tobago, Egypt, Australia and Angola. Regulatory approvals remain pending in Brazil and the U.S., which Adamson said are progressing as expected.
Vega added that Transocean had received credit-rating upgrades from S&P Global Ratings and Moody’s to B- and B2, respectively, and has positive outlooks for further upgrades pending the Valaris transaction’s completion.
About Transocean (NYSE:RIG)
Transocean Ltd. is a leading international provider of offshore contract drilling services for the oil and gas industry. The company specializes in the operation of mobile drilling units, including ultra-deepwater drillships, semisubmersible rigs and high-specification jackup rigs. Transocean’s fleet is designed to meet complex drilling requirements, from ultra-deepwater well construction to shelf exploration and development projects.
The company’s core services encompass the full spectrum of offshore drilling operations, including project and engineering management, marine operations, drilling supervision, and maintenance support.
