SeaDrill's (SDRL, Financial) top line grew by 1% while its bottom line declined by a massive 49% last quarter. Also, it announced that it will suspend dividend payments due to worsening in offshore drilling activities that took a toll of late. This led its share price decline more than 20 % aftermath.
Opportunity worth considering
However, there can hardly be any greater opportunity to own the stock as this strategic measures of suspending dividend will now enable the stock to trade at the actual fundamentals rather than dividend driven. Moreover, it will reinforce its rebuilding capabilities and strengthen its balance sheet like reducing debt. SeaDrill is expected to raise approximately $2.0 billion a year through this suspension of dividend. This will undeniably reduce its dependency on the external financing.
In fact, its results weren’t that bad as it came in line with the analysts’ estimates. The company for the third-quarter posted revenue of $1.29 billion, as compared to $1.28 billion in the same quarter a year earlier. Also, its revenue topped the analysts’ estimates by $60 million. Its EBITDA grew about 27% year-on-year basis, while it had slightly lower operating profit of $461 million from $471 million last year.
Looking ahead, the company looks solid on multiple grounds such as new contracts, efficient capital allocation plan, strategic partnerships and strength in fleet that should keep the company profitable in the long-run.
New contracts to drive growth
SeaDrill has recently signed many new contracts in the last reported quarter. It has also signed an extension with Petrobras (PBR). This extension will allow SeaDrill to have hands on two additional rigs the West Tellus and West Carina. This should enhance its work on the Libra field. It expects these rigs to produce incremental revenue of approximately $1.0 billion during this period.
In addition, the company has also got a three year extension from Petrobras for West Eminence and West Tellus in direct continuation of their existing contracts. This extension is expected to deliver about $1.1 billion in revenue as well. Also, an extension of 145-days for its West Eclipse in Angola with Total should yield approximately $65.0 million in revenue.
Furthermore, it has signed couple of jack contracts. These jack contracts with West Vigilant, West Leda, and West Telesto are expected to advance its backlog with incremental $120 million additions. SeaDrill has approximately 9% of its floater fleet and 26% of its jack-up fleet in 2015 and about 26% of its floater fleet and 61% of its jack-up fleet in 2016 respectively.
