Seadrill - Part 1: Complete Fleet Status Analysis As Of November 22, 2016

| About: Seadrill Limited (SDRL)

Summary

Seadrill released its November fleet status on November 22, 2016.

The company indicated a few new contracts and one day rate reduction. Contract backlog for SDRL is now $3 billion.

It was not a very exciting fleet status, however, it was not the catastrophe that many expected either.

Click to enlarge

Source: Seadrill Ltd. (SDRL)

Seadrill and associated companies in 2016:

  1. Seadrill Partners (NYSE:SDLP): SDRL owns 42,819,100 shares or 46.6% (minority holder) - Value ~$161 million as of 8/26/16
  2. North Atlantic Drilling (NYSE:NADL): SDRL owns 16.966 million shares or 70.36% (majority holder) - Reverse split 1:10 - 12/31/15. Value ~$70 million as of 8/26/16.
  3. Archer Ltd. (OTCPK:ARHVF), listed on Oslo stock exchange: SDRL owns 23.2 million shares or about 39.9% of the company. Reverse split 1:10 in late 2015. Value ~$12.5 million as of 8/26/16. 2Q'16 click here.
  4. Sevan Drilling ASA (SEVDR.OL) (OTCPK:SDRNF), listed on the Oslo stock exchange: SDRL owns 50.11% (14.897 million shares) of the total company. Value ~$5 million as of 8/26/16. 2Q'16 click here. "At August 24, 2016 the fleet's contracted backlog revenue is USD 267 million, excluding option and extension periods"
  5. Asia Offshore Drilling: SDRL owns 66.23% of the outstanding shares (Private company).
  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 (six-year contract with PEMEX)
  7. Ship Finance International Ltd. (NYSE:SFL): SFL 100% owns three 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 Hercules (SFL Hercules 2013), and West Linus (SFL acquired the rig from NADL in 2013 and leased to NADL)
  8. Small investment in 5 companies: Seabras Sapura Participacoes, Seabras Sapura Holdco, Itaunas Drilling, Camburi Drilling, Sahy drilling - Totalling a value of approximately $200 million as of 12/31/2015.

Seadrill indicated in its earnings results:

Seadrill's order backlog as of August(?) 20, 2016 is $3.0 billion, comprised of $2.2 billion for the floater fleet and $0.8 billion for the Jack-up fleet. The average contract duration is 16 months for floaters and 15 months for Jack-ups. For the Seadrill Group, total order backlog is $7.0 billion.

To access SDRL Fleet status as of November 22, 2016, please [click here.]

Ultra-Deepwater Drillships

#

Drillships

Type/Year

Built

Shared with another assoc. company

Day rate

K $

Contract

End

Location
1

West Navigator

UDW-HE 2000

X

NADL

70.36%

Available Norway
2

West Polaris

UDW 2008

X

SDLP 46.6%

490 3/18 [Exxon Mobil] Angola
3

West Capella

UDW 2008

X

SDLP 46.6%

Available Spain
4

West Gemini

UDW2010

656 10/17 [Total] Angola
5

West Auriga

UDW 2013

X

SDLP 46.6%

562

Mobilization fee of $37.5 m paid over the contract

10/20

[BP]

USA

6

West Vela

UDW 2013

X

SDLP 46.6%

(Sold in Q3 2014)

564

Mobilization fee of $37.5 m paid over the contract

11/20

[BP]

USA

7

West Tellus

UDW 2013

329

10/19

[Petrobras] Brazil

8

West Neptune

UDW 2Q2014

573

Mobilization fee of $37.5 m paid over the contract

12/17

[LLOG] USA
9

West Saturn

UDW 3Q2014

634

225

Mobilization fee of $35 m paid upfront.

12/16

12/16-1/17

[Exxon Mobil]

Liberia

10

West Jupiter

UDW 4Q2014

581

12/19

[Total]

Nigeria

11

West Carina

UDW 1Q2015

461

6/18

[Petrobras] Brazil
12

West Draco

UDW 2017

Samsung Available -
13

West Dorado

UDW 2017

Samsung Available -
14

West Aquila

UDW 2018

DSME Available -
15

West Libra

UDW 2019

DSME Available -
Click to enlarge

Semi-Submersibles

#

Semi-Sub.

Type/Year

Built

Shared with another assoc. company Day Rate K $

Contract

End

Location
1

West Alpha

4th-HE 1986

X

NADL

70.36%

Available

UK

2

West Venture

5th-HE 2000

X

NADL

70.36%

Available UK
3

West Phoenix

6th-HE 2008

X

NADL

70.36%

Available

145

-

2/17-5/17

[Total]

UK

4

West Hercules

6th-HE 2008

X

Own by SFL

Available

Norway

5

West Sirius

5th-BE 2008

X

SDLP 46.6%

297

Payment from BP over the contract. Terminated

7/17

[BP]

USA

6

West Taurus

6th-BE 2008

X

Own by SFL

Available Spain
7

West Eminence

6th-HE 2009

Available

Spain

8

West Aquarius

6th-HE 2009

X

SDLP 46.6%

615

4/17

[Hibernia]

Canada

9

Sevan Driller

6th-BE 2009

X

Sevan 50.11%

Available China
10

West Orion

6th-BE 2010

Available Namibia
11

West Pegasus

Available

Terminated

(Dispute)

Mexico

12

West Capricorn

6th-BE

2011

X

SDLP 46.6%

316

526

Mobilization fee of $30 m paid over the contract

11/17 Standby

11/17-7/19

Contract swapped with the West Sirius

[BP]

USA

13

West Eclipse

6th-BE 2011

340

Part to be paid to JV

6/18

[ExxonMobil]

Angola

14

West Leo

6th-HE 2012

X

SDLP 46.6%

605

Mobilization fee of $18 m paid over the contract

6/18

Dispute "force majeure"

[Tullow oil] Ghana
15

Sevan Brasil

6th-BE 2012

X

Sevan 50.11%

269 7/18 [Petrobras] Brazil
16

Sevan Louisiana

6th-BE 2013

X

Sevan 50.11%

350

Mobilization fee of $32.5 m paid upfront

5/17

[LLOG]

USA

17

Sevan Developer

6th-HE

Pushed Until 2017

Note: SDRL has only an option to buy with no penalty if canceled

X

Sevan 50.11%

Available

- Cosco
18

West Rigel

6th-HE

Delayed special deal with Shipyard.

X

NADL

70.36%

Available - Jurong
Click to enlarge

Jackups

#

Jackup

Type/year built

Shared with another assoc. company

Day Rate

K$

Contract

End

Location
1

West Epsilon

Heavy-duty-HE

X

NADL

70.36%
Available Norway
2

West Elara

Heavy-duty-HE

X

NADL

70.36%

326 (+$24 million taken to income - Mobilization)

3/17

[Statoil] Norway

Norway

3

West Linus

Heavy-duty-HE

XX

NADL

70.36%

Own by SFL

326 (+12.43/d)

-

Mobilization fee of $24 m paid over the contract

5/19

5/19-5/21 Option

-

-

-

[Conoco Phillips] Norway
4

West Defender

BE

X SeaMex

50/50

155.5

8/20

[PEMEX]

Mexico

5

West Resolute

BE

Available Sharjah
6

West Prospero

BE

Available Malaysia
7

West Courageous

BE

X SeaMex

50/50

155.5

6/21

[Pemex] Mexico
8

West Triton

BE

Available

Sharjah
9

West Vigilant

BE

Available

Malaysia

10

West Intrepid

BE

X SeaMex

50/50

155.5

12/20 [Pemex] Mexico
11

West Ariel

BE

120

Non operating flotel mode.

2/18

[ENI]

Congo

12

West Cressida

BE

64.5 1/17 [PTTEP] Thailand
13

West Freedom

BE

64.5

42.5

225

12/16

1/17-3/17

4/17-9/17

[Cardon IV] Venezuela

14

West Callisto

BE

120

123

Mobilization fee of $20 m paid over the contract

12/16

1/17-11/18

-

-

-

[Aramco] Saudi Arabia
15

West Leda

BE

Available

Malaysia

16

West Mischief

BE

85

Mobilization fee of $17m paid over the contract

12/17

-

-

-

[NDC]

Abu Dhabi

17

AOD I

BE

X Asian Offshore

66.23%

102.9

6/19

-

-

-

[Aramco] Saudi Arabia
18

AOD II

BE 2013

X Asian Offshore

66.23%

102.9

6/19

-

-

[Aramco] Saudi Arabia
19

AOD III

BE 2013

X Asian Offshore

66.23%

114

Mobilization fee of $39.5 m paid over the contract

12/16

[Aramco] Saudi Arabia
20

West Tucana

BE 2013

223

6/17

[Cabina Gulf] Angola

21

West Telesto

BE 2013

Available

Malaysia

22

West Castor

BE 2013

110

12/16 - 12/17

1/18-12/18 option

1/19-12/19

option

[ENI]

Mexico

23

West Oberon

BE

2013

X SeaMex

50/50

171.5

5/20 [Pemex] Mexico
24

West Titania

Ex-Prospector 3

BE

1Q2014

X SeaMex

50/50

171.5

5/19 [Pemex] Mexico
25

West Titan

BE

2017?

Available - -
26

West Proteus

BE

2017?

Available - -
27

West Rhea

BE

2017?

Available - -
28

West Tethys

BE

2017?

Available - -
29

West Hyperion

BE

2017?

Available - -
30

West Umbriel

BE

2017?

Available - -
31

West Dione

BE

2017?

Available - -
32

West Mimas

BE

2017?

Available - -
Click to enlarge

SDRL/SDLP also owns two barges and one semi-tender. There is no tender rig under construction now.

Tender Rigs and Semi-Tender Rigs

# Tender Rig Shared with another assoc. company

Type/Year

Built

Day Rate

K $

Contract

End

Location
1 T15

X

SDLP 46.6%

2013 110 7/19

[Chevron]

Thailand

2 T16

X

SDLP 46.6%

2013 110 8/19

[Chevron]

Thailand

3

West Vencedor

X

SDLP 46.6%

2010

-

115

3/17 Available

3/17 - 7/17

Singapore

[ConocoPhillips]

Indonesia

Click to enlarge

November Fleet status recent changes commentary:

• The jack-ups AOD I and AOD II received three year contract extensions from Saudi Aramco expiring in June 2019 and July 2019, respectively. The extensions are in direct continuation of the current contracts and have added approximately $225 million in contract backlog (preceding FSR).

To access my SA article about this situation on October 13. [click here]

• The jack-up AOD III received an 83 day contract extension from Saudi Aramco expiring in December 2016, resulting in a $9 million increase in contract backlog. No contract extension indicated for the rig with this new FSR.

• The SemiSubmersible West Leo owned by SDLP, contracted by Tullow Oil in Ghana has received a "force majeure" and is now disputing the claim. This is a remaining backlog of $357 million for SDLP. Nothing has been mentioned about this case by SDRL? It could be about ~60 million in backlog loss for SDRL.

To access my SA article about this situation on October 4. [click here]

• The West Epsilon received notice of cancellation from Statoil effective mid-October 2016. The unit was previously contracted until the end of December 2016. In accordance with contractual terms, a lump sum payment of approximately $11 million is payable by Statoil.

To access my SA article about this situation on September 27. [click here]

• The West Pegasus received a notice of termination from Pemex for the drilling contract effective August 16, 2016 resulting in a potential backlog reduction of $266 million. Seadrill has disputed the grounds for termination and is reviewing its legal options.

To access my SA article about this situation on August 22. [click here]

• The West Castor secured a new one-year contract with ENI in Mexico commencing in December 2016, resulting in a $40 million increase in backlog which includes the provision of onshore logistics services.

• The West Vigilant secured a 3 month contract under the existing agreement with Repsol in Malaysia commencing in August, resulting in a $10 million increase in backlog.
The Jack-up West Vigilant is now stacked after ending its contract.

• The West Phoenix was awarded a 90 day contract with Total in the UK, West of Shetland. The backlog for the contract is estimated at $17 million. @189K/d.

To access my SA article about this situation on November 2. [click here]

• The West Saturn was awarded a one well contract at $225k/d with ExxonMobil in Liberia. This is in direct continuation of its current contract with ExxonMobil in Nigeria, which was due to end on December 8, 2016. This results in an estimated total contract backlog increase of $9 million.

• Cardon IV exercised their option on the West Freedom to extend the non-operating flotel period by three months to March 31, 2017. Operations will recommence on April 1, 2017, and will extend to September 30, 2017, at a rate of $225k/d.

• SDRL agreed to reduce the total remaining contract value on the West Jupiter by $144 million. The duration of the contract remains unchanged. As part of the agreement, the contract has been amended such that the compensation due in the event Total elected to terminate for convenience would ensure that the Company's backlog remained materially intact. The West Jupiter is currently contracted with Total in Nigeria until December 2019.

I estimated the day rate reduction $581k/d to now $452k/d.

• The West Vencedor got a 5-month contract with ConocoPhillips in Indonesia with options, starting March 2017 at $115k/d.

Newbuilding Program event for the quarter.

1. During October North Atlantic Drilling announced an amendment to the agreement for the West Rigel with Jurong Shipyard Pte Ltd ("Jurong"), which extends the delivery deferral period to January 6, 2017. The extension allows the parties to continue to explore commercial opportunities for the unit. In the event no employment is secured for the unit and no alternative transaction is completed, the Company and Jurong will form a Joint Asset Holding Company for joint ownership of the unit, to be owned 23% by the Company and 77% by Jurong.

To access my SA article about this situation on October 5. [click here]

2. During October Sevan Drilling Ltd ("the Company") and Cosco agreed to exercise the third six-month option to extend the deferral agreement to 15 April 2017. Cosco will refund $26.3 million, or 5% of the contract price, plus other associated costs during the Fourth Quarter of 2016. The final delivery installment has been amended to $499.7 million, representing 95% of the $526.0 million contract price.

To access my SA article about this situation on October 17. [click here]

Operationally, performance in the fourth quarter is strong with 98% utilization quarter to date.

Total Rigs for SDRL Group:

Idle Working Under-construction Total
Tender 1 2 0 3
JU 7 17 8 32
Floaters 11 16 6 33
Total 19 35 14 68
Click to enlarge

Click to enlarge

Click to enlarge

Commentary:

It was not a very exciting fleet status, however, it was not the catastrophe that many expected either. M. Per Wulff said in a preceding conference call that the company may be forced to accept some day rate reduction without an extension called "blend & extend", in the future, and it happened with the West Jupiter. The company scrapped $144 million in total backlog in order to keep the contract as it is.

The company said also that contract renegotiation discussions are still going on and we should expect more "adjustments".

The Floaters segment.

The company stated that the activity level in the "floater market has increased, albeit primarily for short term work at extremely competitive day rates." However, SDRL expects to see the floater sector getting worse before we see any signs of improvement. The most significant element is that the rig attrition must accelerate, too many rigs out there.

The combination of volume returning to the market at a measured pace and accelerated scrapping activity is expected to lead to a balanced market at some point. Based on the expected level of scrapping activity and the number of units that are anticipated to be cold stacked, a relatively small increase in spending could meaningfully tighten the floater market.

The Jack-ups segment.

The company is more optimistic in this segment and expects a bottom earlier than the floater market, due to the specificity and nature of the contracts.

However there continues to be an active spot market centered around Southeast Asia and the Middle East.

The paramount problem with this particular segment is that the scrapping activity (again) is well below the level required, and stand at only 5% of the fleet being retired, which is insufficient.

The reason is called the "low carrying cost of idle jack-ups" which is not forcing the rig owners to opt for scrapping. The effect is that the utilization level will stay lower longer. Thus, quality Jack-ups or premium jack-ups with strong customers is one advantage that the company is glad to have.

The Part 2, will be about the balance sheet.

Important note: Do not forget to follow me on SDRL and other offshore drillers. Thank you for your support.

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 own a small long position at below $2 and trade often the stock.

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