Executive Summary / Key Takeaways

• Transocean has significantly fortified its financial position, reducing debt by approximately $1.2 billion in 2025 and achieving an $87 million reduction in annualized interest expense, setting a clear path for accelerated deleveraging.
• The company operates a highly differentiated fleet of 27 mobile offshore drilling units, specializing in ultra-deepwater and harsh environment drilling, underpinned by industry-leading technology and safety performance.
• The deepwater and harsh environment offshore drilling markets are poised for a robust recovery, with active utilization for drillships and harsh environment semisubmersibles projected to exceed 95% and approach 100% respectively by 2027.
• Transocean's technological advancements, including 20k subsea completions and advanced automation, provide a critical competitive advantage, enhancing operational efficiency, safety, and well construction for customers.
• Despite ongoing capital discipline from operators and macro uncertainties, Transocean's substantial $6.7 billion contract backlog and aggressive cost-saving initiatives are expected to drive strong cash flow generation and long-term shareholder value.

Setting the Stage: Transocean's Enduring Legacy and Strategic Pivot

Transocean Ltd., founded in 1926, has long been a cornerstone of the offshore contract drilling services industry, providing specialized mobile offshore drilling rigs, equipment, and crews globally. The company's journey through the past decade, particularly under the leadership of former CEO Jeremy Thigpen, has been transformative. Transocean emerged as the sole publicly traded offshore drilling company to withstand arguably the industry's worst downturn without restructuring, a testament to its resilience and strategic foresight. This period saw a deliberate restructuring of its asset base, honing a focus on a highly differentiated, pure-play floater fleet tailored for ultra-deepwater and harsh environment drilling services.

The broader industry landscape is undergoing a significant shift. Persistent geopolitical instability, supply chain vulnerabilities, and the limitations of renewable energy sources are prompting governments and operators worldwide to re-evaluate their energy strategies. Offshore oil and gas is increasingly recognized as a strategic asset, crucial for enhancing energy security and diversifying supply portfolios. This trend is expected to drive robust, long-term demand for hydrocarbons, with oil and natural gas producers likely to allocate a greater portion of their budgets to deepwater drilling. Deepwater and harsh environment fields offer strong returns and lower carbon intensity compared to other hydrocarbon sources, making them increasingly attractive for capital allocation. Third-party projections from Wood Mackenzie indicate a 40% increase in deepwater investment by 2030, with over 90% of proven and probable reserves being economic above $50 per barrel.

Technological Edge: The Foundation of Differentiation

Transocean's competitive moat is significantly strengthened by its relentless pursuit of technological differentiation and innovation. The company's fleet, comprising 20 ultra-deepwater floaters and seven harsh environment floaters as of September 30, 2025, is among the highest specification globally. This includes its eighth-generation drillships, the Deepwater Atlas and Deepwater Titan, which achieved an industry first in 2024 by installing the first two 20k subsea completions in offshore drilling history. These completions are pivotal in enabling first oil for customers in high-pressure, high-temperature reservoirs.

The Deepwater Titan further showcased its capabilities by running the heaviest casing string on record, weighing approximately 2.85 million pounds. This achievement unlocks significant well construction and production efficiencies for customers. Beyond these flagship accomplishments, Transocean is deploying advanced automation and robotics across its fleet. The IntelliWell automation platform, installed on rigs like the Transocean Norge, enables fully automated casing running and offline stand building operations, allowing over 1.5 million feet of drill pipe to be tripped with no personnel in the red zone. The co-developed rotary multi-tool eliminates manual tasks on the drill floor, while robotic riser bolting systems on three ultra-deepwater drillships automate the riser joint connection process, removing personnel from the hazardous red zone and handling over 3,000 riser joints to date.

Further enhancing safety, Transocean has deployed the Kinetic blowout stopper, a retrofittable tubular shearing technology, and HaloGuard, a monitoring and control system that stops drill floor moving equipment when personnel are in close proximity. HaloGuard is operational on eight rigs, with an agreement nearing completion to implement it on four of six rigs in Brazil. These technologies not only improve safety and efficiency but also contribute to superior operational performance, commanding premium day rates and securing customer-funded installations. In 2024 alone, Transocean was granted 22 patent applications, underscoring its commitment to innovation.

A Disciplined Fleet and Market Positioning

Transocean's strategic approach to fleet management is disciplined and selective, aiming to extract maximum value from its unique assets. The company has been proactive in rationalizing its fleet, with plans to retire a total of nine rigs by mid-2026, including several ultra-deepwater and harsh environment floaters. This decision aligns the fleet with evolving customer needs and supports a more balanced industry supply-demand dynamic. Currently, the company does not see a compelling case for reactivating cold-stacked units, preferring to maintain a portfolio of the most marketable and competitive assets.

In the competitive landscape, Transocean distinguishes itself through its operational expertise, strong customer relationships, and a specialized focus on harsh environment drilling. While competitors like Valaris Ltd. (VAL), Noble Corporation plc (NE), and Seadrill Ltd. (SDRL) also operate in deepwater and ultra-deepwater segments, Transocean's "7G plus" assets—characterized by high hook load, super high throughput, and larger mud handling capacities—offer superior efficiency for complex well designs compared to what it terms "commodity 7G" rigs. This differentiation is evident in the market, where Transocean's high hook load 7G+ assets and 8G 20k assets have secured contracts approaching and exceeding $500,000 and $600,000 per day, respectively. As of 2025, there is no single 1,400-ton rig with availability, highlighting the scarcity and demand for Transocean's premium assets.

The company's market positioning is further reinforced by its industry-leading contract backlog, which stood at approximately $6.7 billion as of October 15, 2025. Regionally, the outlook is constructive. The U.S. Gulf is stable, with high demand for high-specification drillships and nine projects expected to reach final investment decision in the next three years, including 20k prospects like BP (BP)'s Guadalupe and Tiber. In Brazil, Petrobras (PBR) is steadily increasing its rig count, projected to reach 32-33 active rigs by the second half of 2025, with Shell (SHEL) and BP also planning significant programs. Africa is anticipated to see incremental demand for at least three rigs through 2027, while Norway continues to exhibit strong demand for harsh environment rigs, with Transocean's four units fully committed into 2027. Emerging opportunities are also materializing in Australia, Asia, and India, requiring additional drillships and semisubmersibles.

Financial Fortification and Performance Trends

Transocean's financial performance in 2025 reflects its operational strength and strategic deleveraging efforts. For the three months ended September 30, 2025, contract drilling revenues increased to $1,028 million, up from $948 million in the prior year period. For the nine months ended September 30, 2025, revenues reached $2,922 million, a 13.6% increase from $2,572 million in 2024. This growth was primarily driven by improved revenue efficiency (97.5% in Q3 2025), higher average daily revenues ($462,300 in Q3 2025), and increased utilization (76% in Q3 2025). The newbuild ultra-deepwater floater Deepwater Aquila also contributed to the nine-month revenue increase. For the full year 2024, Transocean delivered adjusted EBITDA of $1.15 billion on approximately $3.5 billion of adjusted contract drilling revenues, achieving an adjusted EBITDA margin of approximately 33%.

Operating and maintenance costs increased in 2025 due to higher activity, increased reimbursable costs, and inflationary pressures, partially offset by cost-saving initiatives and favorable legal outcomes. Depreciation and amortization expenses decreased, mainly due to rigs sold or classified as held for sale. General and administrative costs saw a reduction for the nine months ended September 30, 2025, driven by lower legal and professional fees and decreased personnel and technology costs. The company recognized significant impairment losses totaling $3.05 billion for the nine months ended September 30, 2025, primarily on assets classified as held for sale. Interest expense increased, largely influenced by changes in the fair value of exchangeable bonds.

A cornerstone of Transocean's strategy is strengthening its financial flexibility. The company achieved substantial progress in deleveraging, reducing debt by approximately $1.2 billion in 2025, exceeding its scheduled maturities of $714 million. This was accomplished through a combination of equity and debt capital market transactions, including a public offering of 143.80 million shares in September 2025, raising $421 million. In October 2025, Transocean issued $500 million in 7.88% senior guaranteed notes due 2032 and executed significant debt redemptions and tender offers, including a $903 million payment to fully redeem $655 million of 8% Senior Notes and $248 million of 6.88% senior secured notes due February 2027. These actions are projected to reduce annualized interest expense by approximately $87 million.

The company expects to meet its remaining scheduled maturities with cash flow from operations, with year-end liquidity forecasted to be slightly over $1.4 billion in 2025 and between $1.6 billion and $1.7 billion in 2026.

Outlook and Strategic Initiatives

Transocean's outlook for the offshore drilling market remains positive, underpinned by strong industry fundamentals and increasing customer confidence. Management anticipates that the current "temporary slowdown" in contracting activity is nearing its end, with the market expected to tighten significantly by late 2026 and early 2027. During this period, the global active ultra-deepwater fleet is projected to approach utilization exceeding 90%, leading to upward pressure on day rates. Demand for harsh environment rigs is expected to remain robust through the end of the decade.

For the fourth quarter of 2025, Transocean forecasts contract drilling revenues between $1.03 billion and $1.05 billion, with an average fleet-wide revenue efficiency of 96.5%. Operating and maintenance expenses are projected between $595 million and $615 million, and capital expenditures between $25 million and $30 million. Preliminary guidance for full year 2026 anticipates contract drilling revenue between $3.8 billion and $3.95 billion, with 89% of this revenue already associated with firm contracts. Cash interest expense is expected to be approximately $480 million, and capital expenditures between $125 million and $135 million.

Strategic initiatives are focused on enhancing financial flexibility and operational efficiency. The company has embarked on an enterprise-wide evaluation to identify cash cost savings, targeting approximately $100 million in both 2025 and 2026, primarily from fleet operating and maintenance expenses. An additional $50 million annual reduction in shore-based organization costs is expected from 2026. These savings are intended to accelerate debt reduction, with the ultimate goal of achieving a net debt to EBITDA ratio of 3.5x by late 2026, which would enable the company to consider shareholder distributions.

Key Risks and Mitigations

Despite the positive outlook, Transocean faces several risks. Global macro uncertainties and commodity price volatility could impact customer capital discipline, potentially deferring demand for drilling services. The company's below-investment-grade debt rating results in increased fees and interest rates, affecting its cost of capital. Legal and regulatory challenges, such as ongoing Brazilian tax investigations (totaling $115 million as of September 30, 2025) and asbestos litigation, while not expected to have a material adverse effect on the financial position or results of operations, could impact cash flows.

Transocean mitigates these risks through its substantial contract backlog, which provides revenue visibility and resilience against market disruptions. Its high-specification fleet, technological leadership, and strong operational performance ensure it remains the preferred partner for complex deepwater and harsh environment projects, even in competitive environments. The company's proactive debt management and cost-saving initiatives further strengthen its financial resilience, positioning it to capitalize on the anticipated market upcycle.

Conclusion

Transocean Ltd. stands at a pivotal juncture, having successfully transformed into a leaner, more technologically advanced, and financially robust leader in the offshore drilling sector. Its strategic pivot towards a high-specification fleet, coupled with relentless innovation in drilling technology and safety, has created a formidable competitive advantage. As the deepwater and harsh environment markets enter a period of sustained recovery, driven by increasing global energy demand and a renewed focus on offshore investment, Transocean is uniquely positioned to capitalize on these trends. The company's aggressive deleveraging, substantial backlog, and disciplined cost management underscore a clear path to enhanced shareholder value. With utilization rates and day rates projected to rise significantly, Transocean's commitment to operational excellence and financial strength positions it as a compelling investment in the evolving energy landscape.