seadrill rig west gemini

Seadrill Shares Tumble as Dividend is Cut

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November 26, 2014

west gemini
Seadrill’s dual activity drillship, West Gemini, image: Seadrill
reuters logoOSLO, Nov 26 (Reuters) – Seadrill suspended dividend payments on Wednesday to help it weather a slump in offshore drilling rig market rates, sending its Oslo-listed shares down by as much as 18 percent.

Seadrill, controlled by shipping tycoon John Fredriksen, said it needed to save cash as financing for its large orderbook of new vessels is becoming more difficult to obtain while rivals are depressing charter rates.

Investors expected the dividend to be cut by a third, not completely eliminated, and the share price fall pulled Seadrill down from being the world’s biggest rig firm by market capitalisation to bring it alongside Transocean.

The shares were down 12 percent at 124.50 Norwegain crowns by 1040 GMT.

“The absence of dividend will re-price the share down to peer multiples,” brokerage Platou said in a note to clients. “We expect a significant sell-off from yield investors.”

Shares in both Seadrill and Transocean are down close to 50 percent this year as energy companies delay or cancel projects, trying to save cash after oil prices fell by 30 percent since June, threatening the viability of many deepwater developments.

The market fall has been exacerbated by an oversupply of new vessels, ordered during the boom times and set to be delivered just as rates are plunging to multi-year lows.

“With approximately 25 percent of the (global) ultra-deepwater fleet available in 2015, certain rig owners seem willing to work at or close to cashflow break-even rates and we expect this type of activity to continue in the short term,” Seadrill said.

Rig rates, which peaked at $650,000 per day in 2013 for top specification deepwater units, are now below $400,000 per day and the market is expected to be weak for years to come.

“One of the few remaining attractive features of the drilling space was dividend payments,” Nicholas Green a senior analyst at Bernstein Research said.

“Having a dividend cut is a concrete sign that things are as bad as people fear … it’s another confirmation to how hard it is out there to be an offshore service provider today.”

Seadrill has 16 rigs under construction with $4.7 billion of yard payment instalments still due and the firm said it hoped to save $2 billion a year from the dividend cut. It said it could still buy back up to 10 percent of its shares, if market conditions allowed.

Seadrill’s third-quarter earnings before interest, taxes, depreciation and amortisation met expectations, falling 4 percent to $635 million in the quarter. (Reporting by Balazs Koranyi and Stine Jacobsen, Editing by Louise Heavens and Greg Mahlich)

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