Transocean Ltd. (NYSE: RIG) may halt the dividend for the third and fourth quarters of this year, a move analysts at Evercore ISI say would be a smart move given the deeply challenged offshore drilling environment.
The offshore Swiss titan made the announcement after market closing that its board of directors would consider the suspension, as well as others issues, during its “Extraordinary General Meeting” set for Oct. 29.
As for the dividend suspension, Evercore said in a late Tuesday note to investors, “We estimate such action would save RIG about $110 million across those two quarters alone, and think the company is likely to pay no dividend until the offshore rig market stabilizes, which we believe will be late 2017 at the earliest.”
The company may see an aggregate loss of non-cash impairments on investments of more than $2 billion, Evercore said, based on the deterioration of the offshore drilling market and concerns regarding the timing of the market’s recovery.
“We believe a suspension of the company’s dividend would be a prudent decision amid the very difficult offshore drilling environment, though shares are likely to sell off on the announcement,” Evercore said. “Furthermore, we continue to believe RIG could retire 10-15 additional vessels in the near term as overall utilization and pricing are likely to fall further.”
At the end of July, upstream MLP Linn Energy (Nasdaq: LINE) and its Linn Co LLC (Nasdaq: LINE) decided to suspend its distributions indefinitely. Investors responded, and the unit price for LINE took a 26 percent hit, while LNCO plummeted 29 percent.