Among the various offshore drilling practices, ultra-deepwater drilling is the most expensive and technically challenging method since it involves drilling at water depths of over 5, 000 feet.
Although the outlook for ultra-deepwater drilling demand remains strong, Transocean could see increasing competition going forward due to the addition of new ultra-deepwater drilling capacity in the industry.
Transocean is looking to navigate these challenges by concentrating on high specifications sectors such as ultra-deepwater and harsh environment drilling where the competitive intensity is considerably lower.
Recent discoveries off the coasts of West Africa, Brazil and a resurrection of drilling activity in the US Gulf of Mexico have spurred demand for ultra-deepwater rigs.
We believe that if the company continues the trend of strengthening its deepwater and ultra-deepwater assets, its average daily revenues per rig and the gross margins of its contract drilling business will be positively impacted going forward.