Seadrill Turns to Loss on $1.8 Billion Writedown

Photo of Seadrill’s West Pegasus. Photo: Captain Freeman

By Mikael Holter

(Bloomberg) — Seadrill Ltd., the offshore driller controlled by billionaire John Fredriksen, reported its first quarterly loss since 2011 as a collapse in oil prices reduced demand for its rigs.

The net loss of $1.83 billion came after the Hamilton, Bermuda-based company booked $1.8 billion in non-cash impairment charges to investments and goodwill, it said in a statement. Earnings before interest, taxes, depreciation and amortization fell 14 percent to $546 million from a year earlier, beating the $506 million average estimate in a Bloomberg survey of 21 analysts.

“Market conditions are likely to remain challenging through 2016 and the coming quarters will provide insight into the 2017 environment,” Chief Executive Officer Per Wullf said in the statement. The writedown is “good housekeeping,” and Seadrill’s underlying business is “very sound and healthy,” he said in a video on the company’s website.

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Seadrill rose as much as 6.5 percent in Oslo, the most since Nov. 16, and the shares closed 2.9 percent higher at 55 kroner, bringing losses over the past 12 months to 61 percent.

‘Solid Operations’

Seadrill and other offshore-rig owners such as Transocean Ltd. and Ensco Plc are suffering as oil companies cut investments after crude prices fell to about $45 a barrel from a high of $115 in June 2014. Demand is weakening at the same time as the market faces a glut of new vessels, prompting drillers to cut dividends, defer newbuild deliveries and renegotiate contracts to weather the downturn.

The company said $1.1 billion of the impairment charge was related to its ownership in Seadrill Partners LLC and $563 million came after a test on goodwill.

Still, as the impairments were non-cash items, “focus today should be on the solid operations and Ebitda beat,” Martin Huseby Karlsen, an analyst at DNB Markets, said in a note to clients. DNB recommends clients sell the stock, with the market remaining “challenging.”

Seadrill continues to talk with shipyards and clients to postpone delivery of new units and amend contracts, it said in the report. In the meantime, new deals are being made at or below cash break-even levels in the ultra-deepwater floating rig market, the company said. Day rates for the most advanced rigs have fallen to about $250,000 from highs of about $650,000 in 2013, according to a Nov. 12 Pareto Securities AS report.

Backlog Shrinks

Seadrill’s backlog dropped to $12 billion from $14 billion three months earlier. The company said it had won a three-year contract with Saudi Arabian Oil Co. for a jack-up rig with a total revenue potential of $136 million, it said.

Seadrill also said that Hyundai Samho Heavy Industries Co. last month started arbitration proceedings to contest the driller’s cancellation of the West Mira rig and its right to recoup $170 million in pre-delivery installments.

The company expects Ebitda to be about $30 million less in the fourth quarter than in the third, it said.

Seadrill, which says it has the world’s most modern rig fleet, has stood by as rivals such as Transocean have scrapped more than 40 units since the end of last year. The market needs to see at least 60 more units exit permanently, Wullf said in the video.

“Then we are very well positioned with our new fleet when the upturn comes,” he said.

©2015 Bloomberg News