Transocean Casting Off Its Older Rigs Into New Entity

In an slightly under the radar move, Transocean (RIG) announced that it was creating a new entity, Caledonia Offshore Drilling Company, which will be comprised of eight North Sea midwater rigs. Given the location, it actually sounds like a reasonable name choice. Wow. The rigs under consideration are all from the 70’s and 80’s and would possibly include the following rigs: Sedco 704, Sedco 711, Sedco 712, Sedco 714, Transocean John Shaw, Transocean Prospect, GSF Arctic III and J.W. McLean. After Caledonia is formed later this year, Transocean plans on separating the unit and it is currently considering ‘various options’ for the separation. Perhaps a spinoff a la Noble Corp (NE)? Another possibility which has been discussed would be the creation of a publicly listed MLP.

The move is part of Transocean’s new ‘asset strategy’ which includes shedding ‘non-core’ assets and investing in newer, higher spec offshore rigs. The company is primarily focused on deepwater and ultra-deepwater drilling and its performance has been lagging. For some additional motive seeking, this piece points to last year’s bitter public proxy battle with activist investor Carl Icahn. As part of the settlement with Icahn (who actually lost during the shareholder votes), the company paid out a sizable dividend and added one of Mr. Icahn’s nominees to the board. Based on comments from the company, it sounds like an MLP is the favored structure, but we are rooting for a spin and will keep you updated as the company releases more information.

Disclosure: Author holds no position in any stock mentioned.