When Seadrill reported third-quarter results, there was a bit of something for everybody, from earnings to ordering another rig to M&A activity to spin-offs and disposition of assets.
First off, while it barely missed on revenue estimates (bringing in $1.09 billion vs. $1.11 billion expected), it missed rather badly on earnings estimates (recording $0.44 per share compared to estimates of $0.68). The disappointing results were mostly attributed to more downtime than expected, as it was moving some rigs to new locations and doing some maintenance on them as well.
As a result, utilization rates, one of the things to watch at any drilling company, fell a bit for the high-revenue floaters:
|Rig Type||Q2 2012||Q3 2012|
|Floaters (drillships & semi-submersibles)||95%||82%|
Remember, utilization rates are really important to track, as they tie in to revenue and earnings (rigs only bring in revenue when they're working, but the company has to pay expenses on them all the time). Utilization rates slipped this quarter, so we'd like to see them go back up when the company next reports. We also don't want to see newbuilds sitting around doing nothing, so getting contracts for them is important. So far, Seadrill is doing a good job with newbuilds, but we have to keep an eye on that.
Second, it ordered a new ultra-deepwater drillship, to be delivered at the end of 2014. This gives the company 22 rigs currently under construction, with 12 of them having work contracts for when they are delivered. The majority of the deliveries will occur within 2013 and 2014.
Third, on the M&A front, Seadrill just about doubled its ownership of Asia Offshore Drilling from 34% to 66%, and will buy the rest of the shares to end up completely owning the company. It has three jack-up rigs under construction, so this seems to be a way to acquire those rigs for Seadrill's own fleet.
Fourth, it performed the IPO of the MLP, SDLP; that stands for Seadrill Limited Partners. It retains ownership of 75.7% of the company and transferred partial ownership stakes in four rigs. SDLP also has the right to acquire stakes in more rigs that obtain long contracts (five years or more), as well as having the option to acquire a couple of the tender rigs Seadrill currently owns. The intent of creating the MLP was to provide an additional source of funds and lower Seadrill's overall cost of capital. We'll have to see how that works out.
Seadrill also moved toward listing the North Atlantic Drilling subsidiary (where all the harsh environment rigs are) as a separate company.
Fifth, it is selling its entire tender rig fleet (all but the couple promised to SDLP) to SepuraKencana Petroleum. This will reduce the company's debt by about $800 million, reduce future newbuild commitments by about $363 million, give it about $1.2 billion in cash to , and increase its ownership stake in SepuraKencana from 6.4% to about 13%.
Sixth, it grew its revenue backlog to a new high of $21.3 billion. This includes all future revenue expected to come in over the next few years, and is a reflection of the strong market in offshore drilling, both for ultra-deepwater and premium jack-up drilling.
Finally, Seadrill increased its quarterly dividend by a penny to $0.85 per share; it also decided to pay the Q4 dividend early, at the same time as the Q3 dividend in December, so that U.S. investors will be protected from any increase in dividend tax rates. I'd expect the next dividend to be paid in June next year, skipping the "normal" schedule of paying every three months.