One of SeaDrill’s (SDRL) strongest competitive advantages is its large fleet of very modern offshore rigs. The company currently owns and operates the newest fleet in the industry and management seems to be very determined to keep it that way. SeaDrill has executed a few actions in the past few weeks that show how committed this company is to retaining its moat over its competitors and this commitment could benefit the company and stockholders.
SeaDrill continues to show commitment toward maintaining its competitive advantage in the form of its modern fleet. The company also shows the ability to dispose of old rigs in the ways that best benefit shareholders. SeaDrill is selling off the 2010-built West Juno jack-up rig for $248.5 million, a price that gives the company a gain of approximately $18 million. The sale of West Janus gives the company a gain of $50 million.
This money is newly available to be put to other uses. It also slightly increases the company’s liquidity as it transfers capital out of illiquid assets and into other investments, which may or may not be more liquid. The company could also use the money to pay down some of its debt or continue the stock buybacks that it was conducting up until the middle of May to reduce the dilution effect of its convertible bond conversion. The company could also use this money to continue expanding its fleet with new rigs. SeaDrill may also return this money to shareholders in the form of dividends. All of these uses ultimately benefit both the company and the shareholders.
Disclosure: I am long SDRL.