Analyst Note:
Revenue improved to $1.5 billion from $1.3 billion in the prior quarter while operating profit jumped to $568 million from $471 million over the same time frame. New rig deliveries during the quarter were the West Tellus, West Auriga, West Vela, West Tucana, and AOD III.
However, the outlook looks increasingly challenging for Seadrill as the offshore drilling markets are entering a cyclical downturn, in our view. As we've highlighted, the majors appear to be focused on reining in capital spending to take advantage of a buildup of rig deliveries without a contract in place while high-grading the opportunities for investment. Seadrill has 20 rigs under construction with only three contracts in place and yard payments of $6.3 billion remaining, which will require the firm to raise new capital from the markets. In response, the firm has indicated that it will hold i ts dividend at $0.98 per quarter, using funds from master limited partnership dropdowns to create a reserve fund to pay the dividend and reduce debt. Seadrill also will refrain from ordering any new rigs. In short, the company appears to be preparing for an industry downturn for the rest of 2014 and 2015. We are reviewing our fair value estimate for a possible decrease*, but plan to maintain our no-moat rating.
*Fra 246 NOK/aksje red.anm.
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