Seadrill Limited: Complete Fleet Status And Second Quarter Results Analysis

| About: Seadrill Limited (SDRL)

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 Million 83.79 241.14 579.16 594.62 5,992.16 60 - -

Shares owned by SDRL

Million

42.82 169.66 231.05 298 490 39.72 Fintech Advisory Inc. -
% owned 51.1 70.36 39.9 50.11 8.18 66.23 50 -

Stock value

in $ (August 27, 2014)

33.5 9.74 1.59 0.489 1.367 - - -

Gross value

$ Billion

1.45 1.70 0.39 0.15 0.67 - - -

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.

# Drillships Shared with another assoc. company

Type/Year

Built

Day rate

K $

Contract

End

Location
1 West Navigator

X

NADL

70.36%

UDW-HE

2000

589

628

?

9/14

10/14-12/14

1/15-1/20

Norway

Rosneft

2 West Polaris

X

See (8)

UDW

2008

655.74 3/18 Angola
3 West Capella

X

SDLP 53.18%

UDW

2008

627.5 4/17 Nigeria
4 West Gemini  

UDW

2010

656 10/17 Angola
5 West Auriga

X

SDLP 53.18%

UDW

2013

565 10/20 USA
6 West Vela  

UDW

2013

565 11/20 USA
7 West Tellus  

UDW

2013

Idle

Las Palmas

- Liberia
8 West Neptune  

UDW

2Q2014

Mobilization

570

10/14

10/14-10/17

USA
9 West Saturn  

UDW

3Q2014

Mobilization

633.75

8/14-1/15

1/15-1/17

Exxon

Nigeria

10 West Jupiter  

UDW

4Q2014

Mobilization

567

9/14-11/14

11/14-11/19

Total

Nigeria

11 West Carina  

UDW

4Q2014

Samsung Available -
12 West Draco  

UDW

3Q2015

Samsung Available -
13 West Dorado  

UDW

4Q2015

Samsung Available -
14 West Aquila  

UDW

4Q2015

DSME Available -
15 West Libra  

UDW

4Q2015

DSME Available -

* 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
1 West Alpha X

NADL

70.36%

4th-HE

1986

537

Option

552

7/16

8/16-7/17

8/17 - 7/22

Norway

Russia

Russia

2 West Venture X

NADL

70.36%

5th-HE

2000

448 7/15 Norway
3 West Phoenix X

NADL

70.36%

6th-HE

2008

465 10/15 UK
4 West Hercules XX

NADL

70.36%

See (8)

6th-HE

2008

497

497

1/17

1/17-1/18 Option

Faroe Island
5 West Sirius

X

SDLP 53.18%

6th-BE

2008

535

7/19

USA
6 West Taurus

X

See (8)

6th-BE

2008

656.66 2/15 Brazil
7 West Eminence  

6th-HE

2009

624.46 7/15 Brazil
8 West Aquarius

X

SDLP 53.18%

6th-HE

2009

540

615

10/15

10/15-4/17

Canada
9 Sevan Driller

X

Sevan 50.11%

6th-BE

2009

421.64 6/16 Brazil
10 West Orion  

6th-BE

2010

624.46 7/16 Brazil
11 West Pegasus  

6th-HE

2011

461.36

Market rate

8/14-8/15

8/15-8/16

Mexico

Pemex

12 West Capricorn

X

SDLP 53.18%

6th-BE

2011

495.65

9/17

9/17-8/19 Option

USA
13 West Eclipse  

6th-BE

2011

450

455

455

1/15

1/15-1/16 Option

1/16-1/17 Option

Angola
14 West Leo

X

SDLP 53.18%

6th-HE

2012

605 7/18 Africa
15 Sevan Brasil

X

Sevan 50.11%

6th-BE

2012

396.57 7/18 Brazil
16 Sevan Louisiana

X

Sevan 50.11%

6th-BE

2013

505

2/17 USA
17 Sevan Developer

X

Sevan 50.11%

6th-HE

4Q2014

Available

- -
18 West Mira  

6th-HE

1Q2015

590 6/15-6/20 Husky
19 West Rigel X

NADL

70.36%

6th-HE

2Q2015

? 8/15-7/20 Rosneft

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-up Shared with another assoc. company

Type/Year

Built

Day Rate

K$

Contract

End

Location
1 West Epsilon X

NADL

70.36%
Heavy-duty-HE 289 12/16 Norway
2 West Elara X

NADL

70.36%

Heavy-duty-HE

365

365

3/17

3/17-3/19

Norway

Norway

3 West Linus XX

NADL

70.36%

See (8)

Heavy-duty-HE

375

375

5/19

5/19-5/21 Option

Norway
4 West Defender X SeaMex 50% BE

155.5

9/20

Mexico
5 West Resolute   BE

140

140

10/15

10/15-10/16 Option

Kuwait-Saudi Arabia
6 West Prospero   BE 155.77 5/16 Malaysia
7 West Courageous X SeaMex 50% BE

155.5

5/21

Mexico
8 West Triton   BE

145

11/14

Saudi Arabia/Kuwait
9 West Vigilant   BE 167 11/14 Malaysia
10 West Intrepid X SeaMex 50% BE 155.5

1/21

Mexico
11 West Ariel   BE

205

8/16

Congo
12 West Cressida   BE 155 9/14 Thailand
13 West Freedom   BE

225

12/16

Venezuela

14 West Callisto   BE 150

11/15

11/16 Option

Saudi Arabia
15 West Leda   BE 165 3/15 Malaysia
16 West Mischief   BE

175

195

12/14

12/14-4/15

Congo
17 AOD I

X Asian Offshore

66.23%

BE

180

205

5/16

5/16-5/17 Option

Saudi Arabia
18 AOD II X Asian Offshore

66.23%

BE

2013

180

205

6/16

6/16-6/17 Option

Saudi Arabia
19 AOD III X Asian Offshore

66.23%

BE

2013

180

205

10/16

10/16-10/17 Option

Saudi Arabia
20 West Tucana  

BE

2013

167

Mob.

220

1/15

1/15-5/15

5/15-5/17

Vietnam

-

Angola

21 West Telesto  

BE

2013

156.98

Mob.

265

10/14

10/14-11/14

11/14-4/15

Vietnam

Transit

Australia

22 West Castor  

BE

2013

155 5/16 Brunei
23 West Oberon X SeaMex 50%

BE

2013

171.5 5/20 Mexico
24

West Titania

Ex-Prospector 3

X SeaMex 50%

BE

1Q2014

On location 6 years contact Mexico
25 West Titan  

BE

1Q2015

Available - -
26 West Proteus  

BE

2Q2015

Available - -
27 West Rhea  

BE

3Q2015

Available - -
28 West Tethys  

BE

4Q2015

Available - -
29 West Hyperion  

BE

4Q2015

Available - -
30 West Umbriel  

BE

1Q2016

Available - -
31 West Dione  

BE

2Q2016

Available - -
32 West Mimas  

BE

3Q2016

Available - -
33 HE-JU TBN I   2017 Not known yet 4/17-3/22 Rosneft
34 HE -JU TBN II   2017 Not known yet 7/17-6/22 Rosneft

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 Rig Shared with another assoc. company

Type/Year

Built

Day Rate

K $

Contract

End

Location
1 T15

X

SDLP 53.18%

2013 122.72 7/18 Thailand
2 T16

X

SDLP 53.18%

2013 121.27 8/18 Thailand
3 West Vencedor

X

SDLP 53.18%

2010 213.93 5/15 Angola

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 2014 Q1 2014 Q4 2013
Revenue from Drilling in $ million 1,222 1,221 1,469
Operating profit in $ million 476 890 568
EBITDA in $ million 641 624 768
Net Income in $ million 653 3,094 280
EPS in $ 1.29 6.54 0.49
Total Debt $ million (Bearing interest) 12,205 12,277 13,874
Total current assets $ million 3,185 4,031 2,834
Dividend per share $ 1 1 0.98
Cash on Hand $ million 543 912 744
Shares outstanding in million 469.1 469.1 469.0

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.

Disclosure: The author is long SDRL.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.