Seadrill Deal Delay Good News For Investors

| About: Seadrill Limited (SDRL)

Summary

Today, January 15, 2016, the company announced an agreement with Daewoo Ship & Marine Engineering (DSME) in Korea.

SDRL and DSME agreed to defer delivery of two drillships the West Aquila and West Libra to 2Q'18 and 1Q'19.

This is a good news and it will push further the final installment of $800 million for both rigs.

This article is an update of my preceding article on Seadrill (NYSE:SDRL) published on Nov. 24, 2015 about the last official fleet status as of Nov. 24, 2015.

Click to enlarge

Source: West Auriga - Seadrill.

Fleet status for the Ultra-Deepwater Drillships.

Seadrill indicates 15 Ultra-deepwater drillships right now comprised of four under-construction rigs -- 2 in Samsung and 2 in DSME.

# 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

Ready Stacked Norway
2 West Polaris

X

SDLP 46.6%

UDW

2008

653 3/18 [Exxon Mobil] Angola
3 West Capella

X

SDLP 46.6%

UDW

2008

627.5 4/17 [Exxon Mobil] Nigeria
4 West Gemini

UDW

2010

656 10/17 [Total] Angola
5 West Auriga

X

SDLP 46.6%

UDW

2013

565

Mobilization fee of $37.5 m paid over the contract

10/20

[BP]

USA

6 West Vela

X

SDLP 46.6%

(Sold in Q3 2014)

UDW

2013

565

Mobilization fee of $37.5 m paid over the contract

11/20

[BP]

USA

7 West Tellus

UDW

2013

466

4/18

[Petrobras] Brazil

8 West Neptune

UDW

2Q2014

576

Mobilization fee of $37.5 m paid over the contract

12/17

[LLOG] USA
9 West Saturn

UDW

3Q2014

634

Mobilization fee of $35 m paid upfront.

12/16

[Exxon Mobil] Nigeria

10 West Jupiter

UDW

4Q2014

581

12/19

[Total]

Nigeria

11 West Carina

UDW

1Q2015

457

6/18

[Petrobras] Brazil
12 West Draco

UDW

2017

Samsung Available -
13 West Dorado

UDW

2017

Samsung Available -
14 West Aquila

UDW

4Q2015

2Q2018

DSME Available -
15 West Libra

UDW

4Q2015

1Q2019

DSME Available -
Click to enlarge

Today, January 16, 2015, the company announced an agreement with Daewoo Ship & Marine Engineering (DSME) in Korea.

An agreement with DSME shipyard has been reached to defer the delivery of two ultra-deepwater drillships, the West Aquila and West Libra, until the second quarter of 2018 and first quarter of 2019 respectively.

Under the terms of the original construction contracts, the units were to be delivered by the end of the second quarter of 2016 and the total final yard installment for both units of over $800 million was due at that time. This agreement significantly improves the Company`s near term liquidity position by deferring these capex commitments to 2018 and 2019 with no further payments to the yard until that time.

Commentary:

This is a positive news, but not a surprise. In my preceding article aforementioned, I said:

Seadrill is still negotiation a potential delay for its new drillships with Daewoo Ship & Marine Engineering (DSME) in Korea, and JUs with Cosco Dalian in China. Seadrill CEO Wullf said the following:

Our discussions with the shipyards continue to be constructive regarding deferrals.

On August 28, 2015, Seadrill announced that it has deferred delivery of two drillships the West Draco and West Dorado from Samsung have been delayed to 2017 and eight jackups into 2016 and 2017.

The last chapter and maybe not the final one, unfortunately? Will be about the Jackups under-construction at Cosco Dalian, which should be further delayed due to terrible market conditions. At least, the six first ones... It is not clear what has been done with the West Titan still classified as under-construction per Rigzone?

Under-construction Jackups

# Jackup

Type/Year

Built

Day Rate

K$

Contract

End

1 West Titan

BE

2015

Available -
2 West Proteus

BE

2016

Available -
3 West Rhea

BE

2016

Available -
4 West Tethys

BE

2016

Available -
5 West Hyperion

BE

2016

Available -
6 West Umbriel

BE

2016

Available -
7 West Dione

BE

2017

Available -
8 West Mimas

BE

2017

Available -
Click to enlarge

Commentary:

This is without a doubt a good news for SDRL shareholders, especially in this extremely challenging oil environment as I have explained earlier in a preceding article about Mr. Per Wulff's interview in Oslo, yesterday.

This agreement gets even more significance, when we look at the collapse price of oil, now under $30 a barrel. Mr. Per Wulff is now expecting a recovery by 2018 and see the market extremely weak right now. Seadrill is forced to contract its fleet at day rate under the breakeven point.

The company will be able to delay the final installment of $800 million for the two UDW, which is a good financial agreement that gives some more breathing room for Seadrill and it needs it. We do not know what conditions have been attached to this delay?

Disclosure: I am/we are long SDRL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am trading the stock regularly and hold my long position right now.