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SDRL's revenue and operating income were down compared to 2013.

Earnings beat was expected, but current ultra-deepwater contracting environment was more negative than anticipated.

Continue Medium-term "Buy," dividend commitment puts floor on stock.

This morning, August 27, Seadrill (NYSE:SDRL) announced second quarter results and its quarterly Fleet Status Report. Revenues of $1.2 billion were down 3.6% from the year ago period and flat compared to the preceding quarter. Operating income of $476 million was 6.1% less than the year ago period and up 5.8% compared to the preceding quarter (excluding gain on disposal). SDRL reported $1.24/share in earnings; the year ago and previous quarter periods included various one-time gains and are not directly comparable. SDRL reported that its Board "has resolved to maintain the . . . dividend of $1.00 per share" and that "this dividend level is sustainable . . . well into 2016." SDRL identified short-term challenges in its ultra-deepwater floater business due to current-period reduction in drilling, while noting positive trends in bid opportunities for 2015 and 2016 deployments. The Company highlighted the Brazil market as showing "the most notable improvement." SDRL identified jack-up rigs as a segment with short-term under-supply, but potential new delivery-driven, medium-term issues. SDRL operates a fleet of 69 rigs, with three semi-submersibles, eight drillships and eight jack-ups under construction. The total contract value of the new builds is $5.5 billion, of which $4.1 billion is yet to be paid. The Company confirmed financing for four of the new builds has been secured; $1.2 billion of financing remains to be placed through 2016.

The earnings beat was greater than I projected, but the revenue decline was not anticipated. ("Seadrill: Earnings Preview and Lookout Points"). While 82% of the Company's fleet is contracted through at least June 2015, I was anticipating a somewhat more positive forecast with respect to the short term. Looking ahead, any positive news regarding new contracts for the currently-under-construction Sevan Developer (semi-submersible), West Carina (drillships), and the currently-leased-to-Petrobras West Taurus (semi-submersible) would be well received.

As I have written previously ("Seadrill: Best Prospects Among The Drillers And A 'Buy'"), I rate SDRL a "Buy" for the medium-term and continue to believe it is best positioned to handle the current soft market. Given that the $4.00/share is "safe" through 2016, it is hard to believe there is downside below $33 (a 12% yield) and significant upside when conditions firm and contracts are announced for the new builds.

This article reflects the author's opinions and is not meant to be the basis of an investors' buy or sell decisions. All investors should conduct their own due diligence and make investment decisions solely on their research.