Transocean Cashes In on its Popularity Among Day Traders
Over the past seven months, offshore rig operator Transocean has seen its share price rise from 70 cents a share to $4.20 a share - a fivefold increase. Riding the wave of investor interest, the company is planning to issue a new round of $400 million in equity.
It is a sharp turnaround for a company that lost almost all of its market value between 2009-2020. The reversal of Transocean's fortunes reflects material changes in its circumstances, like a rising oil price, a multi-million-dollar debt-restructuring deal, and a successful courtroom fight that kept it out of bankrupty (unlike most of its peers). The company also recently reached an agreement with rig-builder Sembcorp to delay the delivery of two ultra-expensive drillships, keeping its fleet size in control in an oversupplied market.
The jump in its stock also shows the powerful effects of market speculation on Reddit's WallStreetBets forum. The site provides day traders with an informal platform to discuss stock picks - primarily stocks that have been targeted by short-sellers, notably the videogame store chain GameStop. TransOcean was among the companies that WallStreetBets participants bought en masse, driving up the price and forcing short-sellers to cover their positions - sending up the price yet more. Those gains helped raise the share price to a level that the company can use to raise funds by issuing new equity.
Over the long term, Transocean and its competitors face pressure from a different direction: climate-driven changes in regulation, market demand and litigation. In a recent outlook on carbon emissions, the International Energy Agency (IEA) predicted that if the world's economies change their energy utilization to align with the Paris Climate Agreement, no new oil, gas or coal developments will be required beyond those currently sanctioned.
Under IEA's Paris-compliant scenario, oil consumption would decline by 75 percent by the middle of the century. The price per barrel would bottom out at $25, leaving the least-cost OPEC producers as the dominant force in a shrinking market. Offshore developments would struggle in a $25-per-barrel market: breakeven price levels for today's offshore oil projects average in the range of $50 per barrel, according to Rystad Energy.