SeaDrill: a Turnaround in Sight?

SeaDrill (SDRL) announced second quarter ended June 30, 2016 total revenue of $868 million, down 24 percent year-over-year from $1.15 billion during the same period last year and a sequential decline of 2.6 percent from $891 million in first quarter of 2016.

Results are not great

SeaDrill declared second quarter of 2016 net income of $276 million or $0.52 per diluted share, down 35 percent year-over-year from $423 million or $0.77 per diluted share in second quarter of 2015. Going forward, the company estimates third quarter of 2016 net income from operations of $183 million.

The global offshore drilling contractor reported continued sequential and year-over-year decline in both its top and bottom lines primarily driven by the ongoing diminishing margins of the company due to the continuing weaker global commodity demand and pricing environment coupled with the expanding energy exploration costs.

SeaDrill Limited achieved an order backlog of about $3.6 billion during the second quarter of 2016 while SeaDrill Group recorded an order backlog for the period of approximately $8.0 billion.
In addition, the West Cressida started a fresh 9 month deal with PTTEP located in Thailand which is expected to add nearly $18 million in backlog, West Hercules that received a strategic notice about termination of service contract from Statoil would deliver a consolidated payment of about $61 million coupled with repayment of costs linked to the planned rig demobilization and dayrate.

Importantly, SeaDrill has achieved a significant second quarter of 2016 economic utilization for the floater fleet of 98% and 99% for the jack-up fleet, slightly above 97% of economic utilization in the sequential first quarter of 2016 and a notable increase from economic utilization of 92% in second quarter of 2015.

Struggling in some areas  

SeaDrill has illustrated complete quarter of key operations across West Phoenix coupled with the start of strategic operations for the Sevan Driller and West Eclipse.
SeaDrill: a Turnaround in Sight?
Image by tpsdave / Pixabay
The company recorded unusually lower dayrate through the West Tellus with enhanced utilization through superior uptime. West Prospero and West Castor remained idle for the quarter which is expected to be the company’s key cost optimization effort while SeaDrill recorded smaller stacking costs and better operating expenditures on overall operational units. Further, SeaDrill witnessed weaker add-on sales, reimbursable revenue and contract amortization.

The international offshore driller is strategically planning its operational expansion despite ongoing tough global operating environment that signifies notable company’s confidence in its daily growth operations that are focused on minimizing non-core capital expenditures while delivering sustainable long-term growth.

SeaDrill reported $1.3 billion of net cash and cash equivalents by the end of second quarter of 2016 while continuing to minimize expenditures for successfully thriving in the currently tough global operating environment through operating expenditure reductions and headcount reductions. Further, the company has also not planned any fresh rig deliveries or new build installments during 2016. Moving ahead, SeaDrill now expects to conclude its financial update by the fiscal year ending 2016 including, near-term stability through covenant waivers and strategic maturity extensions, long lasting solutions for uniquely bridging for recovery.

The SeaDrill stock is continuing to face a sharp decline since May last year and till date, making it the worst energy stock ever either for near-term or long-term investments. However, the company is now slowly coming on growth track through well-planned cost-optimization initiatives related to the operation of new rigs or vessels.

Clearly, SeaDrill is currently in a grave situation from where the company needs significant financial help to recover rising costs while comfortably paying for the future growth plans amid tough global operational environment.


Overall, the investors are advised to “Sell” any equity held in SeaDrill Limited considering the company’s weaker near-term and longer term growth prospects with hugely poor financial position and having significant total debt of $10.9 billion against smaller total cash position of $1.43 billion only, restricting the company to continue with its daily operations profitably. The profit margin of -34.69% indicate no profit but loss. The PEG ratio of -0.04 suggests no growth but decline.
Published on Sep 2, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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