Seadrill Ltd (NYSE:SDRL), a world leader in offshore deepwater drilling, announces its third quarter results for the period ended September 30, 2015.
- Revenue of $985 million
- EBITDA1 of US$546 million
- 92% economic utilization2
- Excluding non-recurring items and non-cash mark to market movements on derivatives, Net Income3 of $136 million and earnings per share of $0.21
- Reported Net loss of $1.9 billion and diluted loss per share of $3.70, primarily due to $1.8 billion of non-cash impairment charges to investments and goodwill. $1.1 billion relates to the write-down to fair value of investments in Seadrill Partners, the initial recognition of which resulted in a non-cash gain on deconsolidation of $2.3 billion in January 2014.
- The Seadrill Group4 achieved 93% economic utilization
- Seadrill Group orderbacklog of approximately $12.0 billion
Commenting today, Per Wullf, CEO and President of Seadrill Management Ltd., said:
“We have had a strong operating quarter and we continue to make good progress on our cost savings program. Our discussions with the shipyards continue to be constructive regarding deferrals.
We believe that market conditions are likely to remain challenging through 2016 and the coming quarters will provide insight into the 2017 environment. It is important to recognize that we are in a cyclical business. The longer this downturn lasts, the more robust the recovery will be when it happens. Seadrill is in a position to capitalize on the upturn with the the most modern fleet and world class operations.”
The Company has recognized $1.8 billion of non-cash impairment charges during the period.
Under US GAAP the Company is required to determine whether a decline in the value of its marketable securities and equity method investments represents an ‘other than temporary impairment’. Due to the prolonged lower share prices of certain investments, we have recognized the following impairment charges:
- Seadrill Partners: In the first quarter of 2014, the Company deconsolidated Seadrill Partners (“SDLP”) and recognized a non-cash gain of $2.3 billion. Since October 2014, the Seadrill Partners’ share price has fallen from $30 to $9.40 at September 30, 2015, which is determined to be ‘other than temporary’ in nature. As such, we have recognized a non-cash impairment charge of $1.1 billion, which effectively represents a reversal of a portion of the non-cash gain on deconsolidation due to a change in market conditions.
- SapuraKencana: We have also recognized an ‘other than temporary impairment’ of the marketable securities held in Sapura Kencana, which has resulted in a non-cash impairment charge of $167 million.
As a result of the deteriorating environment and continued market uncertainty the Company has performed an impairment test on Goodwill which has resulted in a non-cash impairment charge of $563 million related to the floater business. The Company no longer retains Goodwill on its balance sheet following this impairment.
Sequential Financial Results Overview
Revenues of $985 million for the third quarter 2015 were down compared to $1.1 billion in the second quarter of 2015 due to:
- A full quarter of operations on the West Tellus, West Carina and West Tucana
- Increased idle time on the West Eminence, West Eclipse, West Venture, West Vigilant and West Leda.
- The West Mischief being in between contracts. – Dayrate reductions on the West Phoenix, West Pegasus and West Ariel.
- West Gemini 5 year survey
- No contribution from the West Polaris following sale to Seadrill Partners during the second quarter
The reductions to revenue were partially offset by higher contingent consideration received from Seadrill Partners units, the West Vela and West Polaris. Under the terms of the purchase and sale agreements for these two units, Seadrill Limited is entitled to a portion of the dayrate received.
Reported net operating loss for the quarter was $291 million. Excluding non-recurring items, underlying net operating income was $354 million after adjusting for $563 million of goodwill impairment and $82 million primarily related to the loss on disposal of the West Mira, compared to underlying net operating income of $429 million in the preceding quarter. The reduction in underlying net operating income reflects the the lower revenue in the quarter, partially offset by improvements in operating efficiency and corporate overhead.
Excluding the investment impairment of $1.3 billion, net financial and other items for the quarter resulted in a loss of $301 million compared to a gain of $84 million in the previous quarter. The main changes relate to the revaluation of the derivative hedge book both at Seadrill and Seadrill Partners and a $40 million write down of the Archer loan receivable.
Income taxes for the third quarter were $34 million, a decrease of $11 million from the previous quarter primarily due to a deferred tax benefit related to changes in Nigerian tax law, partially offset by higher return-to-provision adjustments.
Reported net loss for the quarter was $1.9 billion representing basic and diluted loss per share of $3.70. Excluding non-recurring items and non-cash mark to market movements on derivatives, underlying Net Income was $136 million and basic and diluted earnings per share was $0.21.
As of September 30, 2015, total assets were $23.7 billion, a decrease of $1.5 billion compared to the previous quarter
Total current assets decreased to $3.1 billion from $3.2 billion over the course of the quarter, primarily driven by a decrease in related party balances related to the SeaMex joint venture, a decrease in the value of marketable securities related to Seadrill Partners and SapuraKencana, offset by an increase in cash.
Total non-current assets decreased to $20.6 billion from $22.0 billion primarily due to the impairment of goodwill and investments and the cancellation of the West Mira which was removed from newbuildings.
Total current liabilities increased to $3.6 billion from $3.5 billion primarily due to an increase in trade accounts payable and the unrealized mark to market loss on derivatives.
Long-term external interest bearing debt decreased to $9.3 billion from $9.5 billion over the course of the quarter and total net interest bearing debt decreased to $10.2 billion from $10.6 billion as at June 30, 2015. The decrease was primarily due to normal quarterly installments, partially offset by a drawdown on the $450 million jack-up facility
Total equity decreased to $9.8 billion as of September 30, 2015 from $11.2 billion as of June 30, 2015, primarily driven by the net loss in the period.
As of September 30, 2015, cash and cash equivalents were $1.2 billion, an increase of $263 million compared to the previous quarter.
Net cash provided by operating activities for the nine month period ended September 30, 2015 was $1.5 billion and net cash used in investing activities for the same period was $47 million. Net cash used in financing activities was $1.1 billion.
As of September 30, 2015 common shares outstanding in Seadrill Limited totaled 493,078,680 including our holding of 318,740 treasury shares. Additionally, we had stock options for 2,571,941 shares outstanding under various share incentive programs for management and directors, of which approximately 1,026,500 are vested and exercisable. The Company currently holds a TRS agreement with exposure to 4 million shares in Seadrill which matures on December 3, 2015, with a strike price of NOK 62.8 per share.
During the third quarter, Seadrill owned 19 floaters and 19 jack-up rigs in Northern Europe, US Gulf of Mexico, Mexico, South America, Canada, West Africa, Middle East, Southeast Asia and Australia. Additionally Seadrill manages eleven Seadrill Partners rigs comprised of eight floaters and three tender rigs, and five jack-up rigs now owned by the SeaMex Joint Venture. Seadrill also managed one tender rig owned by SapuraKencana. (Original Source)
Shares of Seadrill Ltd. closed yesterday at $6.33, up $0.23 or 3.76%. SDRL has a 1-year high of $21.43 and a 1-year low of $5.60. The stock’s 50-day moving average is $6.75 and its 200-day moving average is $8.77.
On the ratings front, Seadrill has been the subject of a number of recent research reports. In a report issued on September 28, Deutsche Bank analyst Mike Urban maintained a Hold rating on SDRL, with a price target of $13, which implies an upside of 105.4% from current levels. Separately, on September 3, Credit Suisse’s Gregory Lewis downgraded the stock to Sell and has a price target of $5.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Mike Urban and Gregory Lewis have a total average return of -58.1% and -13.3% respectively. Urban has a success rate of 36.3% and is ranked #3634 out of 3636 analysts, while Lewis has a success rate of 29.7% and is ranked #3481.
Seadrill Ltd provides drilling & well services to the offshore industry. It has a fleet of drilling units that is outfitted to operate in shallow water, mid-water and deepwater areas, in benign & harsh environments.