Canaccord analyst Alex Brooks weighs in today on Seadrill Ltd (NYSE:SDRL), after the struggling oil driller reported its first quarter fiscal year 2016 results, with operating earnings beating forecasts as the company deepened costs cuts to weather a market downturn provoked by the collapse of oil prices.

While Seadrill’s 1Q report is impressive in both the scale and pace of the cost reductions, Brooks still believes that the company’s equity at present is close to worthless. The analyst reiterated a Sell rating on the stock, with a NOK1.00 price target.

Brooks commented, “The offshore rig market faces such a gross over-supply – to a great extent generated by Seadrill itself – that the only path we see to a rematching of supply & demand is through the permanent retirement of multiple rigs. That can only happen if rig owners are incentivized – or forced – to scrap units, and cannot find alternative buyers for them. As highlighted by CEO Per Wulff yesterday, the fair value of rigs in the open market is therefore somewhere between not much and zero: we estimate for Seadrill as a whole its rigs are “worth” around $4.2bn.”

“The present value of Seadrill’s and affiliates’ existing contracts is $4.3bn, the cash flow from these is falling fast, and current contracts being bid are at or close to zero gross margin. Including the Seadrill Partners (SDLP) debt – which we believe is fair given the apparent presence of cross-default and that Seadrill Limited owns (net) a majority stake in all SDLP’s rigs – and SDRL’s share of the smaller debt of SeaMex, we estimate end-2Q16 net debt will be $12.1bn. Most of this debt is senior secured credit facilities – which by definition have priority over equity. We therefore believe Seadrill Limited equity remains close to worthless,” the analyst concluded.

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Brooks has a yearly average return of 41.7% and a 88% success rate. Brooks has a 44.3% average return when recommending SDRL, and is ranked #128 out of 3958 analysts.

Out of the 6 analysts polled by TipRanks, 4 rate Seadrill stock a Sell, while 2 rate the stock a Hold. With a return potential of 27%, the stock’s consensus target price stands at $4.17.