Impairment Charge Hits Seadrill: Impact Offshore Drilling Industry

(Dow Jones) Seadrill Ltd. (SDRL, SDRL.OS) swung to a fourth-quarter loss as the offshore-drilling contractor booked a hefty impairment charge.

However, the company said its first quarter earnings are expected to be in line or slightly better than the fourth quarter of 2011 while the subsequent quarters will show strong growth due to new rig capacity.

Seadrill, which provides drilling and well services, focuses on the deepwater segment at depths of 5,000 feet. The Norwegian oilfield-services company’s had seen its profits soar in the first half of 2011 amid gains from the sale of its Seawell unit and stronger demand, while derivative losses weighed on the company’s bottom-line in the third quarter. Seadrill had consistently posted revenue growth, helped in more recent periods by major oil companies looking to increase their offshore exploration activity thanks to high oil prices, but has now posted two consecutive quarters of revenue declines.

Seadrill reported a loss of $109 million, or 23 cents a share, compared with a year-earlier profit of $253 million, or 61 cents a share. The latest quarter included a $463 million non-cash impairment charge on its investment in Archer Ltd., while the year-ago period included a 35-cent impact from early loan conversions. Revenue fell 9.4% to $1.06 billion.

Analysts polled by Thomson Reuters expected a per-share profit of 73 cents on revenue of $1.04 billion.

Operating margin widened to 41.2% from 41%.

Operating profit for floaters, the company’s largest segment, jumped 2.5%, while the jack-up rigs business reported a 45% decrease in operating profit. The tender rigs unit saw profit fall 4%.

The company also increased its quarterly cash dividend by 5% to 80 cents a share.

Seadrill last year spun off its harsh-environment activities, which included six drilling rigs contracted in the North Sea area, into a separate company. Seadrill subscribed for a 75% stake in the new company, North Atlantic Drilling Ltd., in a $1.7 billion private placement. Seadrill last year also acquired a 33.75% ownership stake in Asia Offshore Drilling Ltd. (AOD.OS) in a private placement.

Shares were up 1.5% to $41.72 premarket. Through the close, the stock–which is trading at its highest levels ever–is up 66% from its 52-week low in October.

–By Nathalie Tadena, Dow Jones Newswires