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Summary

  • Seadrill Limited, released its second-quarter results on August 27th. Revenue from drilling was $1,222 million with a net income of $653 million or $1.29 per share.
  • SDRL is confirming that the market is more challenging; however, the company's backlog at over $20 billion is shielding it from any financial downfall.
  • After looking at SDRL's modern fleet and its ability to generate new and high-sized contracts, I believe the stock is a BUY.

Source: West Pegasus Seadrill.

Seadrill Limited (NYSE:SDRL) associated companies after the second-quarter 2014 results:

1 - Seadrill Partners, LLC (NYSE:SDLP): SDRL owns 39,635,400 shares or 53.2% (Majority holder), which represents a gross value of $1.303 billion as of August 27, 2014.

2 - North Atlantic Drilling (NYSE:NADL): SDRL owns 169,663,723 shares or 70.36% (Majority holder), which represents a gross value of $1.652 billion as of August 27, 2014. This situation will change in Q4 2014 with a new partnership with Rosneft (OTC:RNFTF) not finalized yet. SDRL will end up with about 50% ownership.

3 - Archer Ltd. (OTCPK:ARHVF) Listed on Oslo stock-exchange: SDRL owns 231,053,239 shares or about 39.9% of the company. On February 21, 2014, Archer announced an impairment charge of $430 million, which impaired subsequently SDRL fourth-quarter revenues. SDRL stake in the company represents $367 million as of August 17, 2014.

4 - Sevan Drilling ASA (SEVDR.OL) (OTCPK:SDRNF) listed on the Oslo stock-exchange: SDRL owns 50.11% of the total company representing a gross value of $146 million as of August 2014.

5 - SapuraKencana Petroleum BHD listed on the Malaysian stock-exchange: SDRL owns 490 million shares of the company representing about 8.18%, which is a gross value of $670 million as of August 27, 2014. SDRL and SAKP owns pipelay vessels and it is indicated in the last second-quarter results: "The first of the six pipelay vessels, which we own in a 50/50 joint venture with Sapura Kencana, was completed by the yard on May 27th and commenced operations on July 3rd on a 5 year contract with Petrobras."

6 - SeaMex Ltd. A 50/50 Joint Venture for the five Jackups in the Gulf of Mexico with an investment fund called the Fintech Advisory Inc. (Six-year contract with PEMEX.)

7 - Asia Offshore Drilling (NYSE:AOD): SDRL owns 66.23% of the outstanding shares.

8 - Ship Finance International Ltd. (NYSE:SFL): SFL 100% owns four rigs that it chartered on a bareboat basis to Seadrill with option to buy at a fixed rate price around 2023. West Taurus (Chartered on a bareboat basis), West Polaris (SFL Polaris 2008), West Hercules (SFL Hercules 2013), and West Linus (SFL acquired the rig from NADL in 2013 and leased to NADL now).

Associated Co.SDLP

NADL

(1)

Archer Ltd.Sevan Drilling AS

Sapura

Kencana

Asia Offshore Drilling

SeaMex

Ltd.

Ship Finance Int'l.
Shares outstanding Million83.79241.14579.16594.625,992.1660--

Shares owned by SDRL

Million

42.82169.66231.0529849039.72Fintech Advisory Inc.-
% owned51.170.3639.950.118.1866.2350-

Stock value

in $ (August 27, 2014)

33.59.741.590.4891.367---

Gross value

$ Billion

1.451.700.390.150.67---

Total gross owned by SDRL, in these five companies is around $4.3 billion as of August 27, 2014. SeaMex JV and Asia Offshore are excluded. SFL owns four rigs that it chartering to Seadrill directly or through NADL.

(1) During the last conference call, Per Wullf, CEO, indicated a deal with ROSNEFT that will close in Q4 2014.

Additionally we recently announced our intention to acquire 150 land rigs from Rosneft and Rosneft's intention to take a 30% stake in NADL. We are pleased to have Rosneft as the strategic partner and we look forward to close the transaction in fourth quarter.

SDRL will still own over 50% of the company after the deal is ratified.

Update: Complete fleet analysis after the second-quarter results.

Recent fleet status 08/27/2014 and second-quarter results.

1 - Ultra-Deepwater Drillships.

#DrillshipsShared with another assoc. company

Type/Year

Built

Day rate

K $

Contract

End

Location
1West Navigator

X

NADL

70.36%

UDW-HE

2000

589

628

?

9/14

10/14-12/14

1/15-1/20

Norway

Rosneft

2West Polaris

X

See (8)

UDW

2008

655.743/18Angola
3West Capella

X

SDLP 53.18%

UDW

2008

627.54/17Nigeria
4West Gemini 

UDW

2010

65610/17Angola
5West Auriga

X

SDLP 53.18%

UDW

2013

56510/20USA
6West Vela 

UDW

2013

56511/20USA
7West Tellus 

UDW

2013

Idle

Las Palmas

-Liberia
8West Neptune 

UDW

2Q2014

Mobilization

570

10/14

10/14-10/17

USA
9West Saturn 

UDW

3Q2014

Mobilization

633.75

8/14-1/15

1/15-1/17

Exxon

Nigeria

10West Jupiter 

UDW

4Q2014

Mobilization

567

9/14-11/14

11/14-11/19

Total

Nigeria

11West Carina 

UDW

4Q2014

SamsungAvailable-
12West Draco 

UDW

3Q2015

SamsungAvailable-
13West Dorado 

UDW

4Q2015

SamsungAvailable-
14West Aquila 

UDW

4Q2015

DSMEAvailable-
15West Libra 

UDW

4Q2015

DSMEAvailable-

* The West Tellus is presently idle in Las Palmas and green for a new assignment.

Recently, the West Saturn got a two-year contract with Exxon (NYSE:XOM) in West Africa.

2 - Semi-Submersibles.

SDRL has a total of 19 semi-submersibles but only 17 are actually used/rented and 3 are still under-construction either at Costco (1) or Jurong (1) or Hyunday (1).

#Semi-Sub.Shared with another assoc. company

Type/Year

Built

Day Rate K $

Contract

End

Location
1West AlphaX

NADL

70.36%

4th-HE

1986

537

Option

552

7/16

8/16-7/17

8/17 - 7/22

Norway

Russia

Russia

2West VentureX

NADL

70.36%

5th-HE

2000

4487/15Norway
3West PhoenixX

NADL

70.36%

6th-HE

2008

46510/15UK
4West HerculesXX

NADL

70.36%

See (8)

6th-HE

2008

497

497

1/17

1/17-1/18 Option

Faroe Island
5West Sirius

X

SDLP 53.18%

6th-BE

2008

535

7/19

USA
6West Taurus

X

See (8)

6th-BE

2008

656.662/15Brazil
7West Eminence 

6th-HE

2009

624.467/15Brazil
8West Aquarius

X

SDLP 53.18%

6th-HE

2009

540

615

10/15

10/15-4/17

Canada
9Sevan Driller

X

Sevan 50.11%

6th-BE

2009

421.646/16Brazil
10West Orion 

6th-BE

2010

624.467/16Brazil
11West Pegasus 

6th-HE

2011

461.36

Market rate

8/14-8/15

8/15-8/16

Mexico

Pemex

12West Capricorn

X

SDLP 53.18%

6th-BE

2011

495.65

9/17

9/17-8/19 Option

USA
13West Eclipse 

6th-BE

2011

450

455

455

1/15

1/15-1/16 Option

1/16-1/17 Option

Angola
14West Leo

X

SDLP 53.18%

6th-HE

2012

6057/18Africa
15Sevan Brasil

X

Sevan 50.11%

6th-BE

2012

396.577/18Brazil
16Sevan Louisiana

X

Sevan 50.11%

6th-BE

2013

505

2/17USA
17Sevan Developer

X

Sevan 50.11%

6th-HE

4Q2014

Available

--
18West Mira 

6th-HE

1Q2015

5906/15-6/20Husky
19West RigelX

NADL

70.36%

6th-HE

2Q2015

?8/15-7/20Rosneft

3 - Jack-ups.

SDRL has a total of 34 jackups but only 24 are actually used/rented, one in transit, one available and 8 are still under-construction in Dalian. Two new rigs are indicated in the last update for 2017.

#Jack-upShared with another assoc. company

Type/Year

Built

Day Rate

K$

Contract

End

Location
1West EpsilonX

NADL

70.36%
Heavy-duty-HE28912/16Norway
2West ElaraX

NADL

70.36%

Heavy-duty-HE

365

365

3/17

3/17-3/19

Norway

Norway

3West LinusXX

NADL

70.36%

See (8)

Heavy-duty-HE

375

375

5/19

5/19-5/21 Option

Norway
4West DefenderX SeaMex 50%BE

155.5

9/20

Mexico
5West Resolute BE

140

140

10/15

10/15-10/16 Option

Kuwait-Saudi Arabia
6West Prospero BE155.775/16Malaysia
7West CourageousX SeaMex 50%BE

155.5

5/21

Mexico
8West Triton BE

145

11/14

Saudi Arabia/Kuwait
9West Vigilant BE16711/14Malaysia
10West IntrepidX SeaMex 50%BE155.5

1/21

Mexico
11West Ariel BE

205

8/16

Congo
12West Cressida BE1559/14Thailand
13West Freedom BE

225

12/16

Venezuela

14West Callisto BE150

11/15

11/16 Option

Saudi Arabia
15West Leda BE1653/15Malaysia
16West Mischief BE

175

195

12/14

12/14-4/15

Congo
17AOD I

X Asian Offshore

66.23%

BE

180

205

5/16

5/16-5/17 Option

Saudi Arabia
18AOD IIX Asian Offshore

66.23%

BE

2013

180

205

6/16

6/16-6/17 Option

Saudi Arabia
19AOD IIIX Asian Offshore

66.23%

BE

2013

180

205

10/16

10/16-10/17 Option

Saudi Arabia
20West Tucana 

BE

2013

167

Mob.

220

1/15

1/15-5/15

5/15-5/17

Vietnam

-

Angola

21West Telesto 

BE

2013

156.98

Mob.

265

10/14

10/14-11/14

11/14-4/15

Vietnam

Transit

Australia

22West Castor 

BE

2013

1555/16Brunei
23West OberonX SeaMex 50%

BE

2013

171.55/20Mexico
24

West Titania

Ex-Prospector 3

X SeaMex 50%

BE

1Q2014

On location6 years contactMexico
25West Titan 

BE

1Q2015

Available--
26West Proteus 

BE

2Q2015

Available--
27West Rhea 

BE

3Q2015

Available--
28West Tethys 

BE

4Q2015

Available--
29West Hyperion 

BE

4Q2015

Available--
30West Umbriel 

BE

1Q2016

Available--
31West Dione 

BE

2Q2016

Available--
32West Mimas 

BE

3Q2016

Available--
33HE-JU TBN I 2017Not known yet4/17-3/22Rosneft
34HE -JU TBN II 2017Not known yet7/17-6/22Rosneft

4. Tender Rigs and semi-tender rig.

SDRL also owns two Barges and one semi-tender. There is no tender rig in construction now.

#Tender RigShared with another assoc. company

Type/Year

Built

Day Rate

K $

Contract

End

Location
1T15

X

SDLP 53.18%

2013122.727/18Thailand
2T16

X

SDLP 53.18%

2013121.278/18Thailand
3West Vencedor

X

SDLP 53.18%

2010213.935/15Angola

Backlog and contract coverage:

Seadrill has over $18.2 billion in backlog at the end of the second quarter 2014.

Per the second quarter release:

Seadrill Limited order backlog as of August 27 is US$18.2 billion and US$23.3 billion for the Seadrill Group on a consolidated basis. These figures include backlog related to Rosneft and exclude any backlog related to the pipelay vessels or Sete newbuild drillships. The total estimated contract backlog of the excluded contracts is US$12.5 billion.

Contract coverage for the Jackups stands at 97% for 2014 and 73% for 2015 with a backlog of $5.5 billion. At the CC, Per Wullf, CEO, said:

The near term outlook for premium jack-up rigs is firm. Operators continue to appreciate the enhanced recovery factors that premium units provide and there is still a shortage of cable units in the near term.

For the floaters, SDRL has only one rig available and 97% contract coverage for 2014, 78% for 2015 and 60% in 2016. SDRL indicated that the long-term fundamentals for the floaters market are strong.

Financial snapshot after the release of the second quarter 2014 results, snapshot:

 Q2 2014Q1 2014Q4 2013
Revenue from Drilling in $ million1,2221,2211,469
Operating profit in $ million476890568
EBITDA in $ million641624768
Net Income in $ million6533,094280
EPS in $1.296.540.49
Total Debt $ million (Bearing interest)12,20512,27713,874
Total current assets $ million3,1854,0312,834
Dividend per share $110.98
Cash on Hand $ million543912744
Shares outstanding in million469.1469.1469.0

Link: Second quarter 2014.

Link: Conference call second quarter.

Year to date chart:

SDRL Chart

SDRL data by YCharts

Commentary:

The second-quarter 2014 results are again presenting the ultimate proof that Seadrill is the best offshore driller in the world, in my opinion. The company's ability to cater to new and sizable deals is quite unique in this Industry; its state-of-the-art fleet cannot be matched and seems adapted perfectly to the actual needs of the big-oil companies, which are struggling to maintain an acceptable reserve level and must drill deeper offshore where the oil is still plenty.

This perfect business setting is unrivaled in this sector. Per Wullf said at the CC:

The evolution of the maturity of Seadrill has brought us to the point in time where we are capable of providing both single assets, but also solution assets to clients.

This is actually what we've done in U.S., Mexico, Brazil, Saudi Arabia and as you know most recently with Rosneft. It's not a shift in strategy, but rather evolutionary process that continuously keeps the company on the front foot in order to drive growth and value creation for our shareholders.

It is this evolutionary process that keeps Seadrill a step ahead and the industry...

Look at what SDRL has done with PEMEX in the Gulf of Mexico and with Rosneft/NADL in the Kara's sea or what the company will do in West Africa or Mexico soon. Many multi-year contracts, worth $ billion in backlog for the next three to five years, have successfully been generated already.

The company has often been criticized for its long-term debt level. It was seen as too high and in addition worrisome by some analysts, and they literally trashed the company with a rating SELL and a low target.

However, they failed unfortunately to realize that the long-term debt level, just a bit over $12 billion, was a crucial component to the edification of this unique and unparalleled modern fleet, which is positioning the company well ahead of its main competitors now, and allows SDRL a steady positive growth for years to come.

The sustainability of the dividend, which is reaching almost 11% now, was another concern and was questioned repeatedly. The company confirmed that the dividend is safe and here to stay. Per Wullf, CEO, said it again at the conference call:

We also have strongest financial position in our history and have decided to maintain the dividend of $1 per share. We expect to be able to support this dividend level for foreseeable future.

This profitable financial paradigm is becoming the model-to-follow in this competitive environment with a reduced selective market and a momentary rig oversupply. Transocean Limited (NYSE:RIG), for example, has taken steps to match SDRL's strategy and probably many others will follow. We can look at Ocean Rig (NASDAQ:ORIG), Pacific Drilling (NYSE:PACD) or Rowan (NYSE:RDC) and see how a modern fleet is important for growth.

The long-term outlook is strong for both the floaters and the jackups; many offshore drilling companies have indicated that the big-oil companies are actually active again in 2015 and 2016. Another indication, which is showing that the softness experienced since the second-half of 2013, has been only cyclical in nature and will be limited in time and will end in late 2015, probably.

This quarter result confirmed again that SDRL is the best long-term investment with a high-yield secured dividend of nearly 11%; and I was totally amazed to see how blind the Street was to punish harshly this company for this remarkable success story.

As always, it is a unique situation, which presents a perfect opportunity for a long-term profitable investment. Ignoring the noise, looking only at the strong fundamentals and understanding the future potential of the offshore industry, is giving the sole important guidelines that the savvy investors need to follow to invest with confidence for the next five years. I have done that since 2009 and cannot be happier.

I reiterate my BUY accumulate recommendation for SDRL.

Source: Seadrill Limited: Complete Fleet Status And Second Quarter Results Analysis