(FROM THE WALL STREET JOURNAL 2/17/15)
By Dan Molinski and Alison Sider
The chief executive of Transocean Ltd. stepped down abruptly
over the weekend, a casualty of the plunge in oil prices and the
deep-water drilling company's ill-timed expansion.
In a statement Sunday, Transocean said Steven Newman was
replaced on an interim basis by the company's chairman, Ian
Strachan.
The company also said it would ask shareholders to approve an
80% cut in its quarterly dividend to 15 cents from 75 cents a
share, citing its "cyclical and capital-intensive industry." Its
annual meeting is set for May 15 in Switzerland, where it is
based.
Under Mr. Newman's leadership, Transocean, which says it owns
the world's biggest fleet of offshore drilling rigs, has spent
billions of dollars over the past few years on new high-tech
vessels. Some of its competitors did the same, leading analysts to
warn of a glut of drilling capacity even before oil prices began to
slide last summer.
But since crude's steep drop in November, the energy companies
that hire Transocean have announced major cutbacks in spending and
are pressuring service companies to cut their rates. Global oil
prices, which had been at or above $100 a barrel for several years,
fell below $50 earlier this year before edging higher, to about $62
a barrel for benchmark Brent crude.
Mr. Newman "made a number of strategic errors, which ultimately
are not only his responsibility but those of the board as well,"
said Bill Herbert, an analyst at Simmons & Co. International.
"But at this stage the company's challenges are well beyond the
CEO's perceived or de facto shortcomings."
Transocean's shares have fallen by 58% since late June, when oil
prices began tumbling. It is set to announce its fourth-quarter
results on Feb. 25. The company has been under pressure from
activist investor Carl Icahn to restructure operations.
In December, the company said some of its vessels weren't under
contract, and that it was scrapping seven of its older floaters.
Some of its newer-model rigs cannot be docked, so the company must
pay to cover steep daily maintenance and manpower costs even if no
one has hired the rigs.
The company recorded a $2.2 billion loss in the third quarter of
2014, including a $1.97 billion write-off against goodwill and took
a $788 write-down on the value of it deep-water rigs, reflecting a
decline in the lease rates Transocean can command and a weaker
market outlook.
Transocean isn't alone in facing rough waters in the
offshore-drilling industry.
Mr. Newman joined Transocean in 1994 and became chief executive
in March 2010. The following month, the company's Deepwater Horizon
drilling rig exploded, killing 11 workers and unleashing the
biggest offshore oil spill in U.S. history.
Transocean paid a fine of $1 billion in 2013; last year a
federal judge found that the company had been negligent in the
disaster, though he laid the bulk of the blame on BP PLC, which had
hired the rig.
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