Seadrill (NYSE:SDRL) announced today that it had secured new contracts for the jack-up units West Tucana, West Telesto, West Ariel, and West Prospero. In addition to that, Seadrill announced a four-month contract extension for the West Mischief. These contracts represent total revenue potential of $319 million.

More importantly, these contracts alleviate some of the worry that Seadrill wouldn't be able to continue securing contracts for its growing fleet during the current slowdown in the offshore drilling market. Seadrill noted during its last earnings report that "2014 and 2015 may show slower growth in activity levels than earlier anticipated." However, these new contracts demonstrate that Seadrill can continue to contract its fleet, which provides stability for its dividend.

Because of these contracts, Seadrill now has 92% of its 2014 jack-up capacity contracted, while 64% of 2015 capacity is now contracted. Its total order backlog for the jack-up fleet now sits at $4.4 billion with the average remaining contract duration at 2.6 years.

While Seadrill still needs to secure contracts for about a third of its 2015 jack-up fleet, the fact that the 2014 fleet capacity is basically contracted out helps as the company can concentrate on next year. Further, most of the new contracts contain optional extensions, meaning that some of the 2015 capacity could be filled up by current customers extending their contract. Because of this, it appears that Seadrill shouldn't have any problems weathering the current storm that's slowing down the offshore drilling market.


Matt DiLallo has the following options: short April 2014 $38 puts on Seadrill. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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