Seadrill Partners Sliding Down Along The Slippery Slope

Summary

• Revenues for the second quarter of 2019 were at a record low of $178.5 million, compared to $418.1 million in the second quarter last year and down 12.4% sequentially.
• The company had an order backlog of $692 million as of August 20, 2019. The company managed to get an additional $92 million in new contract backlog this quarter.
• It is essential to know that trading SDLP at this level is quite risky, and the stock could eventually totally collapse well below $1.

(Courtesy: SDLP: The drillship West Auriga)

Investment Thesis

Seadrill Partners LLC (SDLP) kept sliding down since I published my preceding article, in which I was rightfully pushing for a short position. It is not something that I usually recommend, by the way.

I recommend reading my article about Seadrill (SDRL) and its second quarter of 2019 results that have been published a few days ago.

Unfortunately, for long-term shareholders, I have been right, and the stock collapsed due to a potential restructuring under Chapter 11 within the next 12 months.

The second quarter of 2019 is again confirming this trend. The only question is how long it will take and how painful it will be for shareholders?

The investment thesis is clear, and I still believe shorting is the right strategy, especially if you are holding a long-term position at a significant loss.

However, if you are a new investor, I recommend you to avoid the stock or trade it on a short-term basis.

The stock took another beating when the company announced the near elimination of the distribution to a symbolic quarterly $0.01 per share and the decision to reverse split 1:10 to be able to stay listed, effective after the close of trading on July 1, 2019.

Amazingly, the company is not considering the situation as desperate or even concerning despite concerning results. John Roche, the company CEO, said in the conference call:

The overall utilization for marketed units remained stable at around 80% and are pockets of strength in the markets for harsh environment units and high-end ultra deepwater drill ships. The improvements in forward pricing and pockets of strength are leading indicators that the recovery is progressing and expect the benign environment floater fixtures made in 2018 to mark the low point in the market.

Seadrill

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.