SeaDrill Clears Low Expectations Bar

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Offshore drilling company SeaDrill Ltd. (NYSE: SDRL) posted third-quarter 2016 results before markets opened on Tuesday morning. The company posted adjusted diluted earnings per share (EPS) of $0.28 on revenues of $743 million. In the same period a year ago the company posted EPS of $0.21 on revenues of $985 million. The consensus estimates called for EPS of $0.22 on revenues of $721.81 million.

On a GAAP basis the company posted a per share loss of $1.29 and a net loss of $656 million. The loss included $882 million in non-cash impairment charges related to Seadrill Partners LLC (NYSE: SDLP), Seadrill’s offshore drilling operating company, and Seamex, a subsidiary that owns and operates jack-up rigs.

Operating income increased from a net loss of $291 million in the year-ago quarter to $247 million and EBITDA fell from $546 million to $441 million. In the second quarter of 2016 operating income totaled $364 million and EBITDA totaled $557 million.

Bermuda-based SeaDrill is one of the world’s largest offshore drilling companies and part of the empire of shipping magnate John Fredriksen, who also controls Frontline Ltd. (NYSE: FRO) among other shipping firms.

Per Wullf, CEO and president of Seadrill Management, said:

The offshore drilling market continues to be challenging however we are seeing an improvement in the level of bidding activity. Most of the new work is for short term contracts at or near cash flow breakeven levels, and 2017 is expected to remain challenging. However, we expect the market to gradually improve as costs have been reset across the value chain and more drilling activity will be needed to avoid accelerated production declines.

SeaDrill reduced its interest-bearing debt load from $9.1 billion to $8.95 billion during the quarter, reflecting normal quarterly installment payments.

Including drilling units owned and operated by SeaDrill Partners LLC, the SeaDrill Group owns 54 rigs of which 34 are operating and 20 are idle. Total order backlog for the group amounts to $7 billion, of which SeaDrill’s portion is $3 billion, comprised of $2.2 billion for the floater fleet and $0.8 billion for the jack-up fleet. The average contract duration is 16 months for floaters and 15 months for jack-ups.

The company guided fourth-quarter EBITDA at around $340 million based on operating income of $146 million in the quarter.

SeaDrill’s shares traded up about 1.6% in Tuesday’s premarket at $2.50. The current 52-week range is $1.57 to $7.49. The consensus 12-month price target before this morning’s report was $1.96.