Transocean (NYSE:RIG) outlined improved profitability, stronger cash generation and a materially strengthened balance sheet during its fourth-quarter and year-end 2025 earnings call, while also detailing its pending acquisition of Valaris and offering a wide-ranging outlook for global deepwater markets into 2027 and beyond.
Fourth-quarter and full-year results
Management said the company delivered “solid” fourth-quarter results, reporting adjusted EBITDA of $385 million and free cash flow of $321 million. For the full year, Transocean reported adjusted EBITDA of $1.37 billion, up nearly 20% year over year, and free cash flow of $626 million.
Capital expenditures in the quarter were $28 million, resulting in free cash flow of $321 million and a free cash flow margin of 31%. Vayda said it was the best quarterly free cash flow the company has generated in several years, attributing it to operational performance, cost savings execution, lower cash interest expense and working capital management.
Balance sheet actions, costs, and fleet performance
CEO Keelan Adamson said Transocean retired about $1.3 billion of debt in 2025 and completed two capital markets transactions aimed at deleveraging, improving liquidity, and managing debt maturities. He said these steps, along with additional debt payments, reduced annual interest expense by nearly $90 million.
Adamson also highlighted ongoing structural cost reductions. The company removed about $100 million in costs in 2025 and said it is on track to decrease costs by an additional $150 million in 2026. He said those changes included rationalizing shore-based support, reducing G&A costs, and restructuring to drive efficiency without hurting operational performance.
Operationally, Adamson said Transocean achieved record uptime just shy of 98%, and reported zero operational integrity events and zero lost time incidents across the fleet. He added that the company completed five major planned out-of-service projects on time and on budget, and continued “high-grading” the fleet. Transocean recycled six rigs in 2025, with one more completed earlier in 2026.
2026 priorities and guidance framework
Adamson laid out three primary objectives for 2026: optimizing the value of Transocean’s high-specification assets, generating “industry-leading” free cash flow, and continuing to reduce total debt to create a stronger and simpler capital structure.
Vayda said Transocean ended the fourth quarter with total liquidity of approximately $1.5 billion, including $620 million in unrestricted cash, about $377 million of restricted cash, and $510 million available under an undrawn credit facility.
He said the company will now include guidance ranges in its earnings release and that 2026 guidance is provided on a standalone basis until the Valaris transaction closes. The company’s guidance assumes slightly lower activity levels versus 2025, including idle time for several rigs such as the KG2, Deepwater Proteus and Deepwater Skyros. Vayda said upside to the high end of the revenue guidance range would largely depend on those rigs being extended beyond contract end dates or beginning new contracts earlier than anticipated.
Despite assumed idle time, Vayda said the company expects 2026 free cash flow to be in line with or better than 2025 due to continued cost and interest expense reductions and further working capital improvements. He also said Transocean plans to use free cash flow to opportunistically reduce debt beyond its remaining 2026 scheduled obligations of about $380 million (including capital lease payments), noting that roughly $130 million of those payments had already been made in 2026. Vayda added that an improved credit profile and cash flow could enable refinancing at lower rates, and said the company expects to end 2026 with liquidity of $1.6 billion to $1.7 billion, excluding any additional opportunistic deleveraging.
Valaris acquisition: synergies, backlog, and leverage targets
Adamson spent a significant portion of the call discussing the company’s definitive agreement to acquire Valaris, calling it a “transformational combination” and saying it aligns with Transocean’s strategic priorities. He said the deal expands the company’s customer base and geographic footprint and is intended to strengthen the company’s ability to provide rig solutions across offshore markets.
Management said it has identified more than $200 million of cost synergies on top of Transocean’s existing cost reduction initiatives. Adamson also said the pro forma combined backlog is expected to be nearly $11 billion, and that the combined cash flow capability is expected to accelerate debt reduction toward leverage of around 1.5x within 24 months of closing. Transocean expects the transaction to close in the second half of 2026.
In the Q&A, Adamson said customers have provided “overwhelmingly positive” feedback on the announced combination and view consolidation as a way to reduce costs and improve service reliability. He also said a key benefit would be creating a more sustainable offshore drilling contractor through the cycle.
Asked about reactivating stacked seventh-generation rigs, Adamson said the company would not bring back units speculatively and would require contract coverage sufficient to recover reactivation investment, adding that management does not see that opportunity “in the very near term.”
Market conditions: improving tendering visibility into 2027
Adamson said that while the company had seen some near-term moderation in tendering, the underlying outlook for deepwater offshore drilling is “strengthening,” with opportunities developing in most major basins. He said Transocean expects deepwater utilization to move meaningfully higher and exceed 90% through 2027.
Chief Commercial Officer Roddie Mackenzie cited an improving cadence of awards and said the company is tracking 32 open tenders expected to be awarded over the next few months, with average contract lengths “well beyond a year.” Mackenzie said Transocean believes the contracting market is past a trough, with customers shifting from limited commitments toward development activity and increasing exploration budgets tied to reserve replacement needs.
Regionally, Adamson said the U.S. Gulf of Mexico has robust long-term demand tied to Paleogene plays and new lease awards with improved fiscal terms, though he noted that any short-term softness could lead preferred assets to reposition to more active markets. In Brazil, he expects rig activity to remain stable, with any small and temporary reduction in Petrobras’s projected fleet count offset by demand from international operators. Management also said it expects Petrobras to conclude “blend-and-extend” renegotiations by the end of the quarter, which Adamson said should add multiple years of backlog; in Q&A, management indicated the impact is not expected to be a “significant incremental upside” to guidance.
Adamson also pointed to growth potential across Africa, the Mediterranean, Southeast Asia, India and Norway. He said Africa’s rig count could rise from roughly 15 to at least 20 over the next year or two, and described expected multi-year programs in Mozambique and anticipated tendering activity and extensions in Nigeria, Angola, Namibia, Ivory Coast and elsewhere. Mackenzie highlighted India’s newly issued ONGC tender for three drillships and two semisubmersibles with four-year durations beginning in the first half of 2027, calling it an unexpected development that could affect perceptions of market tightness.
In closing remarks, Adamson said tendering activity is increasing and multi-year opportunities are returning to the market, improving visibility into 2027 and beyond.
About Transocean (NYSE:RIG)
Transocean Ltd. is a leading international provider of offshore contract drilling services for the oil and gas industry. The company specializes in the operation of mobile drilling units, including ultra-deepwater drillships, semisubmersible rigs and high-specification jackup rigs. Transocean’s fleet is designed to meet complex drilling requirements, from ultra-deepwater well construction to shelf exploration and development projects.
The company’s core services encompass the full spectrum of offshore drilling operations, including project and engineering management, marine operations, drilling supervision, and maintenance support.
