Offshore Exploration Giant SeaDrill Under Pressure as Major Oil Cuts Back on New Projects

Michael Teague |

Shares for the Bermuda-based SeaDrill Limited (SDRL) were trading dangerously close to 52-week lows throughout Tuesday morning’s session on about 4 times average volume, as investors cringed at the company’s quarterly earnings statement for the 4th quarter of 2013.

During the recently-ended period, the $17.67 billion SeaDrill, the largest drilling play on the market, earned $281 million, or $0.49 per share on revenue of $1.47 billion which, although a vast improvement on the prior year’s Q4 earnings of $0.04 per share on revenue of $1.22 billion, was far short of the $0.61 per share that analysts had been expecting. Revenue, however, handily beat expectations of $1.15 billion.

Shares sank as low as nearly 8 percent right after the opening bell, as strong operational results for the period were no match for the company’s lowered outlook for the rest of the year.

Investors who had been looking forward to a dividend hike promised by the company were disappointed to learn that it would be postponed until further notice, as major oil and gas producers for whic it performs offshore drilling, such as Norway’s Statoil ASA (STL) , Royal Dutch Shell ($RDS.A), and France’s Total S.A. (TOT) have been seeking to cut costs, with exploration and new platforms being the first victims.

The production issues of big oil aside, however, SeaDrill’s report showed an operator that is in tip-top shape, with economic utilization rates for floaters and jack-up fleets at 94 and 98 percent respectively. And despite the expected slowdown in 2014, the company still has its hands full. ExxonMobil (XOM) just extended a contract for its West Leda project in Malaysia, and perhaps even more promising is the recent establishment of a Heads of Agreement with Mexico’s soon-to-be denationalized state-giant Pemex for 5 possible jack-up rigs in the first half of 2014. The deal could eventually be worth about $1.8 billion in revenues.

Furthermore, the company has a backlog of orders worth just over $20 billion.

Heading into the latter half of the session, shares for SeaDrill had scaled back losses to 5 percent, or $35.77 a piece.

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Companies

Symbol Name Price Change % Volume
SDRL Seadrill Limited (Bermuda) 3.83 0.43 12.50 34,104,244
TOT Total S.A. 49.09 0.09 0.17 1,647,017
XOM Exxon Mobil Corporation 88.69 0.37 0.42 4,377,007
STL Sterling Bancorp 24.25 -0.15 -0.61 393,536
BLEWD Green And Hill Indus Inc n/a n/a n/a 0
RDSA Royal Dutch Shell Plc ADR Sponsored Repstg A Shs n/a n/a n/a 0

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