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If Seadrill's Pending Restructuring Wasn't Weighing on Its Stock, This Quarter Would Look Pretty Good

By Tyler Crowe – May 25, 2017 at 8:53AM

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One might even think these results could prevent Seadrill from completely wiping out shareholders in its credit renegotiations. That's probably overly optimistic.

Shares of Seadrill (SDRL) haven't been the same since management announced that its restructuring plan will likely involve significant shareholder losses. So no matter what the company's earnings looked like this quarter, they weren't going to ease any investor's nerves.

The funny thing is, though: If not for the pending restructuring, this quarter would look like Seadrill is making progress toward alleviating its woes. Here's a look at the company's most recent results.

Multiple drilling rigs in dockyards

Image source: Getty Images.

By the numbers

MetricQ1 2017Q4 2016Q1 2016
Revenue $569 million $667 million $891 million
EBITDA* $291 million $354 million $528 million
Net income $57 million $127 million $149 million
Earnings per share $0.13 $0.26 $0.27

Data source: Seadrill earnings release. *EBITDA = earnings before interest, taxes, depreciation, and amortization.

Dropoffs in revenue and earnings have been quite common for rig companies lately. Not only are new contracts hard to come by, but the work that rig companies have picked up recently has either been short-term or at much lower day rates. This market dynamic is likely to continue for quite some time, as there are an awful lot of idle rigs out there; that puts pricing power in the hands of the customer.

If we looked at these results in isolation, there would be some good things to pick out. One is that EBITDA margins remained constant compared to this time last year; this means that management has been able to control costs to some extent. Also, Seadrill was able to pay down $244 million in debt, thanks to cash from operations and the West Mira settlement -- Seadrill terminated the construction contract because of shipyard delays -- and was able to add cash to the balance sheet. At the end of the quarter, Seadrill had reduced its total debt outstanding to $9.64 billion and increased its cash pile to $1.46 billion.

Signs of a turnaround?

There's no chance that the market for offshore rigs will change overnight, and we may not ever get back to the $500,000 to $600,000 range for day rates ever again. That said, there are the slightest hints in Seadrill's most recent earnings release that things could start to get better from here. Over the first quarter, Seadrill signed several spot contracts and contract extensions that added $603 million to its backlog of work. A significant portion of that was a 29-month contract extension for its SeaMex joint venture in Mexico.

Since the end of the quarter, though, management announced another $1.4 billion in backlog additions at its subsidiary North Atlantic Drilling (NYSE: NADL). The customer, ConocoPhillips, extended the contracts for two of its harsh-environment jack-up rigs by 10 years. That agreement also excludes any potential performance bonuses.

These aren't enough deals to right the Seadrill ship, but at least it looks like the rudder is pointing in the right direction.

A new leaf, sort of

Another thing that was announced in conjunction with earnings was the retirement of CEO Per Wullf. He will be succeeded by the company's chief commercial officer Anton Dibowitz at the end of June. Wullf will stay on the Board of Directors.

Even though Dibowitz has been with the company since 2007, this is probably the worst time possible to take over, as he will now need to handle the negotiations with creditors that, according to management, could involve filing for Chapter 11 bankruptcy.

What a Fool believes

It's hard to imagine that these results will change the trajectory of Seadrill's renegotiations that much, but a quarter where it has signed some decent-sized contracts could at least make the final deal slightly more palatable for shareholders. Ultimately, though, no investors should be looking to buy this stock until the terms of the renegotiation are announced, and we have a clearer picture of what Seadrill will be.

Tyler Crowe owns shares of Seadrill. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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