By Braden Reddall
March 1 (Reuters) - Transocean Ltd has lured awaySeadrill Ltd's chief financial officer and investorsare eager to find out whether the world's largest offshore rigcontractor will borrow some of its rival's tricks to boostshareholder value.
Esa Ikaheimonen will speak on Monday on his first quarterlyconference call since assuming his new job in November freshfrom a successful spin-out out of an initial group of four rigsfrom Seadrill into a partnership.
His appointment last year prompted chatter among analyststhat Transocean might seek to emulate Seadrill in setting up apartnership vehicle for some of its own rigs, particularly afterthe success of Seadrill Partners LLC, which is up 25percent since the units debuted in October.
Transocean, having put much of its Gulf of Mexico spillliability behind it, still faces weak valuation relative to thesector. Experts say a partnership set-up for some of its morelucrative assets could unlock some value by putting a dollaramount on a specific part of the rig fleet.
Further fueling such speculation was the stake in Transoceanunveiled in January by Carl Icahn, an activist investor whosefondness for master limited partnerships (MLPs) was demonstratedby the January initial public offering of CVR Refining LP.
MLPs pay virtually no corporate taxes since they delivernearly all profits to the owners of the MLP units, which tradelike stocks. They tend to be set up for long-lived assets withsteady cash flows, such as pipelines and oil wells, but theiruse is spreading.
Even before Icahn's stake, analysts peppered outgoingTransocean CFO Greg Cauthen with MLP questions back in November.Cauthen responded that, while Transocean had not structured newcontracts to allow for rigs to move into an MLP, he did not seethe customer as a "big issue" if Transocean made that decision.
"We've actually looked at this, talked to the various banks,watched as Seadrill did their transaction," he said. "And we'regoing to continue to look at it and continue to monitor how anMLP in the contract-drilling space actually performs over time."
THE ICAHN EFFECT
Once Icahn entered the picture, UBS analyst Angie Seditabelieved he would push Switzerland-based Transocean to place atleast a few of its 82 rigs into an MLP.
Ted Gardner, an MLP expert at Salient Partners in Houston,also expected that Icahn would use the leverage of his 5.6percent Transocean stake to make more noise about such apartnership alongside his demands for a dividend.
Transocean would simply have to make sure the contracts forthe rigs going into such a vehicle did not all expire at once.
"The name of the MLP game is stable cash flows," Gardnersaid. "The great thing about MLPs, especially if you have a bigasset base, is you can structure something that works."
Demand for deepwater drilling rigs is strong and contractdurations are lengthening, so Gardner said it was hard for rigowners to avoid thinking about MLPs because of the potentialimprovement in their valuations.
The improving demand helped Transocean report ahigher-than-expected quarterly profit late on Friday.
Seadrill is a Norway-listed company with a smaller butyounger fleet of rigs than Transocean and it also has a majorityowner, shipping entrepreneur John Fredriksen, with a greaterpenchant for financial engineering than Transocean.
The gap between them became especially clear when Seadrillovertook Transocean in market capitalization in late 2011, asituation that has since been reversed.
Yet Transocean is still a laggard in the industry when itcomes to valuation, even after its $1.4 billion settlement inJanuary with the U.S. government over the 2010 BP Plc spill.
Transocean still needs to settle with 100,000 individualsand businesses claiming spill-related damages, which is thesubject of a trial that started this week in New Orleans.
Looking at a measure that captures both debt and equity -enterprise value as a multiple of earnings before interest, tax,depreciation and amortization (EV/EBITDA) - Transocean's ratiois less than 8, while Seadrill is at nearly 12 and Ensco Plc is 9, based on data from Thomson Reuters-owned StarMine.
Fredriksen would be well acquainted with MLPs from hisinterests in shipping, where Gardner said ships in MLPs tendedto have charters of about three years.
But Transocean is a conservative company by nature, with military roots among its past leadership. Chief Executive StevenNewman is a Harvard Business School graduate like predecessorBob Long, although Long was also a Naval Academy graduate whoserved under a chairman who had been in the Air Force.
Newman voiced caution last month about the excitement aroundpotential MLPs in offshore drilling, since they were long-livedassets that did not necessarily have stable cash flows.
"Some of the concerns I think a lot of us have tend torevolve around the cyclicality of this industry," he said at anindustry conference. "If I'm going to put a Transocean name onsomething, I want to make sure I can stand behind that andcontinue to confidently sell that in the marketplace."
Asked if anyone in the offshore contracting business wouldlaunch an MLP this year, Newman added: "There's enough peoplelooking at it and enough shareholder interest in it that Iwouldn't completely rule it out, no."
BP (BP.)
