Drilling Into Transocean Partners LLC And Seadrill Partners LLC
- RIG created RIGP to monetize the portion of its fleet that operates under longer-term contracts.
- We prefer SDLP to RIGP because of SDRL's larger inventory of potential asset drop-downs.
- Secondary offerings and headline risk for offshore contract drillers should create ample buying opportunities.
Update: Seadrill Partners' Unit Price Is At The Bottom Of A Possible Trading Range
- Seadrill Partners announced an increase in Q3 distributable cash flow per unit.
- Distributable cash flow is bound to continue growth, albeit at a slower pace.
- The market re-rated unit yield higher pushing prices lower as I expected.
Don't Panic, Grab Seadrill Out Of The Bargain Bin Instead
- Seadrill's shares have been in absolute freefall this September.
- Investors are overly pessimistic with respect to the earnings prospects of the offshore drilling market.
- The Street, as usual, concentrates only on the short term.
- Heavy price action is determined by fear and uncertainty.
- In my opinion, Seadrill is a highly appealing investment for investors who want to take advantage of the prevailing panic and add a high-yielding offshore player to their income portfolios.
Seadrill Partners Distributable Cash Flow Growth Is Bound To Slow
- Seadrill Partners has increased its distributions by 40% since its IPO.
- Company's debt/equity ratio precludes robust pace of future dropdowns.
- Dropdowns financed mostly with equity issuance will result in slower pace of distribution growth.
Seadrill Partners' Second Quarter Results Show Growth And The Sustainability Of The High Distribution
- Seadrill Partners' second quarter results show significant quarter-over-quarter growth.
- This growth was primarily due to improved rig uptime performance and the presence of a new rig in its fleet.
- For the first time since the first quarter of 2013, Seadrill Partners generated sufficient cash flow to cover its 6.63% distribution in full.
- The company's long-term contracts should ensure that its cash flows are stable to growing going forward.
- Seadrill Partners paid an implied purchase price of $1.24 billion for West Auriga.
- West Auriga only cost $600 million to construct.
- The rig is currently contracted to BP until October 2020. The present value of this contract at the time of the rig's acquisition was approximately $722.62 million.
- The purchase price looks far too high for just the BP contract.
- When we consider the rig's future cash flows after the BP contract ends then the price that Seadrill Partners paid looks reasonable.
Don't Sweat Seadrill Partners' 61.4% Quarter-Over-Quarter Net Income Decline
- Seadrill Partners' net income fell by 61.4% in the first quarter compared to the previous one.
- The reason for this decline has nothing to do with the company's operations.
- This decline was due entirely to a write-down related to a hedging strategy that the company uses to manage its debt payments.
- Seadrill Partners' cash flow was not impacted by this decline in net income and, in fact, the company's cash flow increased significantly quarter-over-quarter.
Seadrill Partners' Acquisition Of West Auriga To Be Accretive To DCF Per Unit
- Seadrill Partners acquired the West Auriga ultra-deepwater drillship in March.
- West Auriga is a modern ultra-deepwater drillship that has comparable or superior technical-capabilities to other competing ultra-deepwater rigs.
- The acquisition of this rig should increase the company's DCF per unit from $0.523 to $0.656 on a quarterly basis even after accounting for dilution.
Seadrill Partners: Q3 Results Show Potential Of Fast Growing MLP
Seadrill Partners: Don't Fret The West Aquarius Settlement
Seadrill Partners: Undervalued With Significant Growth Upside
Seadrill Partners: A Stable Driller With Growth Potential
Tue, Nov. 4, 9:53 AM
- Seadrill Partners (SDLP -3.1%) agrees to acquire from parent Seadrill (SDRL -6.6%) the West Vela for $900M, less $433M of debt outstanding under the existing facility financing the ultra-deepwater drillship.
- Seadrill Capricorn Holdings, SDLP's 51% owned subsidiary, will acquire all ownership interests in the entities that own and operate the West Vela; its portion of the net purchase price after debt would be $238M.
- Under the terms of the West Vela contract, BP is paying a daily rate of $565K plus ~$44K/day as a mobilization fee paid over the term of the contract.
Tue, Oct. 21, 3:42 PM
- A 2015 deepwater market recovery is not the cards as oil companies head into budgeting season amid a shaky oil price outlook, with no reversal of negative news flow soon although it is already well appreciated by Wall Street, Morgan Stanley’s Ole Slorer and Jacob Ng say.
- The firm views a group inflection boiling down to an improving oil price outlook, and recommends sticking with premium asset exposure via Seadrill (SDRL +6.1%) and Atwood Oceanics (ATW +4.1%) in the meantime.
- The market already appears to be pricing in dividend cuts, with current yields now well above historical trading ranges, Stanley says while still seeing relative safety in yieldcos Transocean Partners (RIGP -0.5%) and Seadrill Partners (SDLP +4.1%), which should continue to offer strong distribution growth profiles driven by parent need for funding.
- While retaining Equal Weight ratings on both Noble (NE +3.9%) and Ensco (ESV +3.1%), Stanley sees higher total return upside in NE (~25%) vs. ESV (~10%) over the next few months.
Wed, Oct. 15, 5:27 PM
- Morgan Stanley analysts Ole Slorer and Jacob Ng recently met with Seadrill's (SDRL, SDLP) John Fredriksen and came away feeling optimistic, believing the chairman is ready for the company to make a big expansion move into a likely 2015-16 industry trough if the right “modern rig” opportunity becomes available.
- The firm thinks SDRL's current dividend run rate can be maintained into 2016, it believes consensus feedback that a lower payout ratio would be more optimal might resonate with the board.
Tue, Sep. 23, 5:45 PM
- Seadrill Partners (NYSE:SDLP) -1.6% AH after announcing a public offering of 8M common units.
- SDLP says it plans to use the proceeds for general company purposes, which may include acquisitions, repayment of indebtedness and working capital purposes.
- Seadrill (NYSE:SDRL), which owns slightly more than a third of SDLP, -1.4% AH.
Fri, Sep. 19, 2:09 PM
- Seadrill (SDRL -6.4%) says Tor Olav Troeim, who until recently was considered John Fredriksen's right-hand man, is quitting its board, sending shares sharply lower.
- SDRL says Troeim will focus his efforts on developing liquefied natural gas shipping firm Golar LNG (GLNG +1.7%); it had been known that Troim’s position was set to change, but he was expected to remain a significant player at SDRL.
- Troeim recently owned ~2.6M SDRL shares, but it is not known whether he would sell his stake; Fredriksen reaffirms his commitment to SDRL, in which he is the biggest investor with a 24% stake.
- NADL -12%, SDLP -0.7%.
Wed, Sep. 17, 3:25 PM
- Offshore drilling stocks continue to slide after fleet status reports from Ensco (ESV -1%) and Diamond Offshore (DO -1.8%) confirm that the rig market still has its problems.
- RBC reduces its EPS estimates for ESV based on the September update which featured negative datapoints for stacked floaters, newbuild delays and idle jackups, but the company was able to keep two of its 8500 series rigs working for the rest of the year.
- Susquehanna notes that DO did not report any new notable contracts in its latest fleet status report, and the firm does not expect any new tenders for at least the rest of 2014 and possibly Q1 2015.
- Also: SDRL -0.2%, RIG -1.2%, RDC -2.3%, NE -2.8%, ATW -0.2%, SDLP +0.9%, RIGP +0.4%.
Fri, Sep. 12, 3:23 PM
- It's another down day for offshore drillers after rig owner Noble Corp. (NE -4.5%) signs a pair of new contracts for work in the Gulf of Mexico at substantially reduced dayrates.
- NE's updated fleet status report highlighted a new contract for the Danny Adkins in the Gulf in a minimum 200-day program at $317K/day vs, its previous rate of $498K/day and analyst expectations for the high $300K; the less than rosy update prompts Johnson RIce to lower its 2014 and 2015 EPS estimates to $3.06 and $2.98 from $3.16 and $3.27 previously.
- Seadrill (SDRL -5.4%) also is getting smacked after offering up its own pessimistic take on the offshore drilling industry, and its deal with Rosneft could be threatened by the latest sanctions imposed on Russia by the U.S. and EU.
- Also: RIG -3.6%, ESV -3.6%, DO -3.7%, RDC -1.4%, PACD -2.9%, SDLP -4.1%.
Wed, Aug. 27, 9:31 AM
Wed, Jun. 18, 4:46 PM
- Seadrill Partners (SDLP) -4.5% AH on news it plans a public offering of 6.1M common units; also, Seadrill (SDRL) agrees to purchase directly from SDLP at least $100M of common units via a private placement concurrent with the public offering.
- SDRL plans to use the proceeds for general corporate purposes, which may include acquisitions, repayment of indebtedness and working capital uses.
Fri, May. 30, 2:57 PM
- Seadrill (SDRL -1%) is downgraded to Sell from Hold at Nordea despite the offshore driller’s solid earnings earlier this week.
- SDRL was slightly more positive on the ultra-deepwater market than in its Q4 presentation, but the lack of contract leads for 2013-built West Tellus in 2014 is a clear sign of how quiet the market is, Nordea says, expecting the market to remain weak in the next few years due to the large number of uncontracted newbuilds and plenty of units coming off contract.
- With limited earnings visibility beyond 2015 and likely worsened data points from the market, Nordea sees sustainability of the dividend as uncertain for the next few months.
- SDLP -1.1%.
Mon, Apr. 7, 3:33 PM
- Things could get worse before they get better for offshore drillers, and even market favorite Rowan (RDC -3.6%) could get hit, Morgan Stanley says as it cuts its rating on the stock to Underweight.
- RDC has fallen less than companies with exposure to the floater market thanks to its greater exposure to jackups, but Stanley sees a surge in jackup orders, driven largely by speculative drillers at Chinese shipyards; the jackup orderbook now stands at a record 140 units, of which only ~20 have been contracted.
- In the sector, the firm recommends yield plays such as Seadrill (SDRL), Seadrill Partners (SDLP) and North Atlantic Drilling (NADL), and prefers premium asset exposure through Atwood Oceanics (ATW), Ensco (ESV) and Pacific Drilling (PACD) over lower-end fleets via Diamond Offshore (DO), Noble (NE) and Transocean (RIG).
Tue, Mar. 11, 4:59 PM
- Seadrill Partners (SDLP) agrees to acquire the West Auriga ultra-deepwater drillship from Seadrill (SDRL) for ~$797M.
- The drillship is expected to carry out operations in the Gulf of Mexico until the end of its contract in Oct. 2020 at a dayrate of $565K/day.
- SDLP will recommend an increase in cash distributions of $0.13-$0.15/unit, which would take effect in the June 2014 quarter.
- SDLP plans a public offering of 10.4M common units to fund the transaction; SDRL has committed to purchase at least $50M worth of the units at the public offering price.
- SDRL +0.9%, SDLP -2.4% AH.
Wed, Feb. 12, 12:23 PM
- Seadrill (SDRL -3.3%) may fail to secure the sales prices and external financing required to sustain its current dividend as equity and asset values are slipping, Wells Fargo worries as it downgrades shares to Underperform from Market Perform.
- The firm says SDRL's aggressive dividend policy has never been funded solely by the operations of its high-quality fleet, but instead through the sale of equity and convertible debt, equity in sponsored entities such as North Atlantic Drilling (NADL -1.3%) and Seadrill Partners (SDLP -1.5%), and the outright sale of rigs.
- The dividends of other drillers, including Ensco (ESV -0.9%), Noble (NE -0.2%), Transocean (RIG -0.2%) and Diamond Offshore (DO -0.2%), look safer for now, the firm says.
Dec. 2, 2013, 4:51 PM
- Seadrill Partners (SDLP) -3.3% AH after announcing a public offering of 12.9M common units; also, in a private placement, Seadrill (SDRL) will purchase $50M in units at public offering price.
- SDLP plans to use the net proceeds to fund its portion of the cash purchase price in connection with its acquisition of two semi-submersible drilling rigs.
Sep. 4, 2013, 10:48 AM
- Oppenheimer restarts coverage of energy MLPs, bullish on the asset class as a whole; the firm shows a bias in favor of investing in higher distribution growth, even if the yields are lower, and for owning general partners due to their incentive distribution rights structure.
- Started at Outperform: EQT Midstream (EQM +2.1%), Seadrill Partners (SDLP +0.7%), Tesoro Logistics (TLLP +1.6%), Memorial Production Partners (MEMP +2.4%), Western Gas Partners (WES +0.4%), Western Gas Equity Partners (WGP +0.7%).
- Started at Market Perform: Williams Partners (WPZ), Crosstex Energy (XTEX), ONEOK Partners (OKS), Genesis Energy (GEL).
- Also: New Source Energy (NSLP), Breitbrun Energy Partners (BBEP), LRR Energy (LRE), Mid-Con Energy Partners (MCEP).
May. 1, 2013, 2:27 PMSeadrill Partners (SDLP) is initiated with a Buy at Global Hunter, which likes SDLP's young fleet that's highly contracted with major oil companies and anticipates a long runway of attractive distribution growth driven by dropdown acquisitions from parent Seadrill (SDRL). The firm sees limited downside risk given SDLP's IDR/subordination structure and ample distribution coverage cushion. | Comment!
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