By Joe Carroll
(Bloomberg) — Transocean Ltd., the offshore oil-rig operator that lost two-thirds of its value in the past year, plans to cancel its dividend and record 2 billion Swiss francs ($2.1 billion) in asset impairments as free-falling crude prices slash demand for drilling vessels.
Transocean said it will host an extraordinary general meeting of shareholders on Oct. 29 to seek approval for the dividend halt, as required under Swiss law, according to a statement by the Vernier, Switzerland-based company on Tuesday. The statement was released after the close of regular market trading. Transocean’s U.S. shares plunged 8.5 percent as of 6 p.m. in New York.
The most severe oil-industry collapse since the 1980s has prompted explorers to curtail drilling budgets, cancel rig contracts and shelve plans to search for untapped crude fields from the Indian Ocean to the Gulf of Mexico. Transocean, which spent $1.95 billion on dividends since reviving the payouts in 2013, is husbanding cash to weather the downturn.
“I don’t think they’re quite in panic mode but I don’t think things look great either,” Rob Desai, an analyst at Edward D. Jones & Co. in St. Louis, said in an interview. The cancellation represents new Chief Executive Officer Jeremy Thigpen’s “cleaning the slate and starting from scratch.”
Transocean’s 4.9 percent implied dividend yield is second- highest among rig operators in the Standard & Poor’s 500. Only Helmerich & Payne Inc. pays a higher return at 5.4 percent. Halting the payouts will save Transocean about $100 million this year, said Desai, who has a “sell” rating on the stock.
Thigpen, 40, became CEO in April. Investors will vote on his appointment to the board of directors at the October special meeting, according to the statement.
“In light of the deterioration of the offshore drilling market and concerns regarding the timing of the market’s recovery, the company is evaluating its investments in affiliates as recorded on its Swiss standalone statutory balance sheet for impairment on an interim basis,” the company said in the statement.
Moody’s Investors Service placed Transocean and 10 other deep-sea rig operators under review for a ratings cut on Monday, noting that the decline in demand for rigs slammed the industry just as a wave of newly built vessels are adding to a glut of supply.
“The review reflects Moody’s concern that offshore drilling contractors will face an extremely challenging operating environment through at least 2017,” Sajjad Alam, a Moody’s analyst, said in the statement.
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