International offshore drilling company SeaDrill Limited SDRL is likely to face the most trying times ahead in the coming months. The company’s shares plunged more than 55% to close at a record low of 74 cents on Apr 4 amid debt woes and bankruptcy talks. The shares further slid by around 7% to 69 cents on Apr 5. The sharp decline came after the company announced that it has extended the deadline of the restructuring with the lenders yet again by three months till July 31. If SeaDrill does not manage to get the restructuring right within the aforesaid time frame, the company is likely to default and the investors may face steep losses as the shares may lose all its value.
What led to the Plunge?
Due to the plunge in oil prices since 2014, energy companies reduced their spending and slashed rig hires. The demand for drilling reduced further as the rigs ordered during the boom period led to oversupply. This in turn led to reduced activities and diminishing contract backlog, creating pressure on revenues, earnings and cash flows of energy firms.
SeaDrill, being one of the worst sufferers of the downturn, carries the heaviest debt burden in the oil rig industry, battling with a total of $14 billion debts and liabilities. The company has been contemplating restructuring under bankruptcy for quite some time now but has not been able to secure a restructuring deal yet. Post the announcement of the extension of the renegotiation period, the company has warned shareholders of severe losses. The following is a part of the statement released by the company a few days back.
“We currently believe that a comprehensive restructuring plan will require a substantial impairment or conversion of our bonds, as well as impairment, losses or substantial dilution for other stakeholder… The company currently expects that shareholders are likely to receive minimal recovery for their existing shares.”
What lies Ahead?
SeaDrill is negotiating with more than 40 banks, including Norway's DNB, Sweden's Nordea and Denmark's Danske Bank, as well as with bondholders and several rig-building yards. However, the chairman of the company, John Fredrisken, has a bleak outlook on the industry and is unsure of how the restructuring negotiations will play out with the creditors.
SeaDrill has just been one of the victims of the 2014–2016 downturn in the oil and gas prices. Many offshore drilling companies like Ocean Rig UDW LLC. ORIG, Paragon Offshore, Hercules Offshore, Inc. and Vantage Drilling Company have also filed for bankruptcy protection amid declining oil prices.
Zacks Rank & Key Picks
Headquartered in London, SeaDrill is one of the leading offshore drilling contractors in the world. The company owns or has partial ownership interests in 68 mobile offshore drilling rigs comprising jackups, semisubmersibles, drillships, tender rigs and semi-tender rigs.
The company’s stock peaked at $46.42 per share in Sep 2013. Since then, it has witnessed a decline. Over the past one year, SeaDrill’s shares plummeted more than 75%, underperforming the Zacks categorized Oil-Gas Drilling industry’s 15% gain.
Though SeaDrill is a Zacks Rank #3 (Hold) stock, the company has seen estimates move lower lately. Over the past 30 days, the Zacks Consensus Estimate for fiscal years 2017 and 2018 deteriorated considerably. The negative revisions, suggesting bleak outlook ahead for SeaDrill, might push this stock to a Zacks Rank #4 (Sell) or 5 (Strong Sell).
Better-ranked players in the same industry include Precision Drilling Corp. PDS and Parker Drilling Company PKD. Both these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Precision Drilling reported positive earnings surprise in each of the four trailing quarters, the average being 36.31%.
Parker Drilling posted positive earnings surprise in each of the last four quarters, the average being 13.79%
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Seadrill Limited (SDRL): Free Stock Analysis Report
Ocean Rig UDW Inc. (ORIG): Free Stock Analysis Report
Parker Drilling Company (PKD): Free Stock Analysis Report
Precision Drilling Corporation (PDS): Free Stock Analysis Report
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