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Transocean LTD (NYSE:RIG) has made into the list of offshore drilling firms that has been connected officially to Petroleo Brasileiro SA – Petrobras (ADR)(NYSE:PBR) carwash corruption investigation. The other two drillers dragged in the matter are ENSCO PLC (NYSE:ESV) and Vantage Drilling Company (OTCPK:VTGDF). A former executive at Petrobras has testified to obtaining what he says were compensations made by a person stating to be a Transocean agent in lieu for a rig-operation deal from Petrobras. However, it is just the start and only coming process can put some light on the matter.

The momentum

Even though the stock price of Transocean recouped its losses in August, the persistent weakness in the global oil market is probably to put pressure on Transocean stock for time-being. The drop in its contracts backlog, the decline in capex and projected elimination of its cash payout are the factors that will obstruct stock recovery in coming period. Even at prevailing low valuation, the company’s prospects in the near term aren’t too encouraging.

The view

Analysts are not too positive about Transocean. The average target price as set by the market is $11.6 per share, almost 20% lower than existing price. Also, the average rating outlook stands at “underweight”. At the same time, National-Oilwell Varco, Inc. (NYSE:NOV) boasts a target price at 15% premium to current price with an average rating of “hold”.

The difference

Both National-Oilwell and Transocean performance have suffered due to the sharp decline in oil prices, although NOV stock plunged more, a 42% drop year to date. Despite this decline, the management didn’t talk about slashing its dividend. In addition, NOV has been buying back its stocks.

Concurrently, Transocean’s earnings outlook is grim Nonetheless, it doesn’t appears, as of now, that it faces liquidity problem with cash reserves of $3.7 billion and a five-year credit facility of $3 billion. This indicates the company possesses enough funds to stay afloat in next two years. The decline in the demand for Transocean’s operations reflects in its contract backlog.

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