Seadrill (NYSE:SDRL) has just provided its second-quarter report which confirmed the obvious - the company is ready for its second restructuring. Let’s start with the main announcement from Seadrill: “We continue to evaluate capital structure proposals from our financial stakeholders; whilst no agreement has been reached at this point, it is expected that potential solutions will lead to significant equitization of debt which is likely to result in minimal recovery for current shareholders.”
Its capital structure is absolutely not sustainable in the current environment. In the second quarter, the company generated $277 million of revenue and reported a net loss of $183 million. Operating cash flow was negative at -$162 million. Since the beginning of the year, Seadrill burned $278 million of cash in operations. Not surprisingly, its cash position declined from $1.1 billion in the first quarter to $849 million in the second quarter, while restricted cash also declined by $71 million. In the second quarter, the company spent $92 million for interest on its debt, so the need to equitize the majority of the debt is obvious.
Seadrill’s historic problem is that its secured debt is spread across 43 institutions, which makes negotiations extremely hard. In this light, the company was not able to achieve the amendments on its credit facilities that would have provided it with more financial flexibility, so it will likely have to opt for in-court bankruptcy to solve this issue.
The company’s fleet status report looks bleak due to the lack of new contracts. Seadrill’s semi-sub segment has only two working rigs, and the majority of stacked semi-subs are likely destined to the scrapyard. The drillship segment looks better with four rigs on contracts, although West Gemini was suspended until January 2021. Stacked jack-ups will also have big problems with returning to the market anytime soon, if ever. Put simply, Seadrill’s fleet
