Some Good News for Seadrill But Focus on Dividend

Seadrill (SDRL) has dropped 43% this year–but it’s not all bad news for the offshore driller. Zephirin Group’s Longdley Zephirin explains:

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Some good news. Seadrill's UDW rigs West Jupiter and West Saturn which were ordered in February and April 2012, respectively, were delivered in August 2014 at a cost of $1.1 billion. The West Jupiter is expected to start its contract with Total S.A. (TOT) during late Q414 at a day rate of $567k for 5-years, for a backlog of $1.0 billion. The West Saturn is expected to start its contract with ExxonMobil Corp. (XOM) early Q115 at a day rate of $633.8k for 2-years, for a backlog of $463.3 million. Both rigs are slated to work in West Africa.

Credit Suisse analysts Gregory Lewis and Neesha Khanna agree that Seadril “is well positioned,” but still worry that a dividend cut is in Seadrill’s future:

For as challenging as the market is Seadrill is well positioned with the West Tellus (6G) as its only on the water idle floater…

With Tor Olav Toriem stepping down from Seadrill during the summer, we expect management’s tone to be a bit more conservative. Tor Olav was a ‘rabbit out of the hat guy’, without him we expect less blockbuster moves like the rig agreements with PEMEX and ROSNEFT. That being said Seadrill is in the more than capable hands of John Fredriksen (Chairman), Per Wulff (CEO), and Rune Lundetrae (CFO). While management has stated that they expect to maintain the $4/share dividend – with the stock yielding 18% and Seadrill trading just a stone’s throw from tangible book value, a dividend cut is probably a little bit more palatable to Seadrill.

Shares of Seadrill have gained 3.5% to $23.74 at 11:42 a.m., while Seadrill Partners (SDLP) has dropped 2.6% to $27.32, ExxonMobil has advanced 1.1% to $91.86 and Total has ticked up 0.2% to $57.