TLDR
- Transocean announced pricing of 125 million shares at $3.05 each, representing a 16% discount to Wednesday’s close
- Company increased offering size from originally proposed 100 million shares
- RIG expects to raise $381.3 million before fees to repay debt including 8% senior notes due 2027
- Stock fell 13.7% to $3.14 in premarket trading on Thursday
- Underwriters have 30-day option to purchase additional 18.8 million shares
Transocean shares dropped sharply in premarket trading Thursday after the offshore drilling company announced an expanded stock offering at a steep discount. The stock fell 13.7% to $3.14 before market open.
The company priced 125 million shares at $3.05 each, marking a 16% discount to Wednesday’s closing price of $3.64. This represents an increase from the originally proposed 100 million shares announced earlier this week.
The offering is expected to raise $381.3 million before deducting commissions and expenses. Citigroup, Morgan Stanley, DNB Carnegie, Goldman Sachs and Wells Fargo Securities serve as joint book-runners for the deal.
Transocean granted underwriters a 30-day option to purchase up to an additional 18.8 million shares at the same offering price. This could potentially increase total proceeds if the option is exercised in full.
The company plans to use proceeds primarily to repay or redeem debt. This includes a portion of the $655 million in 8% senior notes due February 2027.
Debt Reduction Strategy
Transocean set a target earlier this year to cut $700 million in debt by year-end. As of June 30, the company carried long-term debt totaling $5.89 billion.
The debt reduction efforts come as energy companies face pressure from persistently low oil prices. Many analysts forecast crude oil could fall below $60 per barrel by year-end.
The Energy Information Administration is among those predicting further price declines. This outlook has curtailed investment in new drilling projects across the industry.
Major oil producers including ConocoPhillips and Chevron have implemented job cuts as part of broader cost-cutting measures. The prolonged slump in oil prices has prompted widespread consolidation efforts throughout the sector.
Market Response and Trading Activity
Despite the stock decline, retail sentiment around Transocean jumped to “extremely bullish” from “bullish” territory according to Stocktwits data. Chatter levels also rose to “extremely high” from “high” over the past day.
The offering is expected to close on Friday, subject to customary closing conditions. With 943.1 million shares currently outstanding, Transocean has a market capitalization of approximately $3.43 billion.
Prior to Thursday’s decline, RIG stock was down nearly 3% year-to-date. The company operates one of the world’s largest fleets of offshore drilling rigs.
The share offering represents a 13% increase in the company’s outstanding share count. This level of dilution contributed to the sharp premarket decline in the stock price.
Transocean’s decision to upsize the offering suggests strong demand from institutional investors despite the discount pricing. The company likely chose to take advantage of this demand to raise additional capital for debt reduction.
The timing of the offering coincides with ongoing challenges in the offshore drilling sector, where day rates remain under pressure from excess rig capacity.
