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Transocean shares sink 7% after Reliance cancels drill ship contract

A picture taken on August 8, 2016, shows the Transocean Winner oil rig after it ran aground at Dalmore on the Isle of Lewis in northern Britain during a storm.
Paul McGinley | AFP | Getty Images

Shares of Transocean sank on Monday after the offshore oil services firm announced a large Indian customer has dropped a contract for one of Transocean's drilling ships ahead of schedule.

The stock fell about 7.5 percent to about $9.85 a share on Monday. Transocean shares are down more than 20 percent this year as the company and its peers continue to struggle through a prolonged downturn in oil prices that has led many exploration and production customers to seek discounts on services and end contracts for equipment.

Indian conglomerate Reliance Industries Limited will terminate its contract in December, ahead of the Jan. 2021 expiration, Transocean said Monday. While Reliance will compensate the company with a roughly $160 million lump sum payment for pulling out early, Transocean will miss out on lucrative day rates it would have reaped had the drill ship remained in operation.

Canaccord Genuity recently upgraded shares of Transocean to hold based on the strength of its balance sheet relative to its competitors and the decline in its share price. However, Canaccord warned the tough times could last longer than expected for oilfield services companies.

"Commentary from the company and competitors this week suggests that further rigs are likely to be stacked as they come to the end of their contracts, and that although day-rates have limited further downside, the period of the current trough is likely to be longer than has previously been assumed," Canaccord said in a research note last month.

Billionaire investor Carl Icahn has cut his stake in Transocean, a filing last week showed. Icahn praised Transocean's management, explaining he had reduced his stake for tax planning purposes.