What happened

Shares of Seadrill Partners LLC (NYSE:SDLP) -- not to be confused with its troubled parent company Seadrill -- rose 21.3% in August. Most of the jump occurred on Aug. 17, after Seadrill Partners announced amendments to its credit agreements and reinstated its cash distributions to shareholders. The stock rose further in anticipation of the company's Q2 2017 earnings but eased off a bit after earnings were announced. 

Offshore oil rig in open water at sunset

Seadrill Partners LLC has been hit hard by the stock market over the past few years. But its parent, Seadrill, is even worse off. Image source: Getty Images.

So what

It would take a long time to fully discuss the ins and outs of Seadrill Partners' relationship with its parent company, Seadrill. But what you need to know is that Seadrill Partners owns and operates 11 drilling rigs. Seadrill owns its own fleet of 49 rigs, with an additional 13 under construction, and also owns Seadrill Partners. 

Seadrill's problems involve those 13 rigs under construction: It went heavily into debt to finance them, and then the bottom dropped out of the oil market in 2014. Suddenly, offshore drilling wasn't as lucrative as it had been, and Seadrill was stuck with idling rigs, unfinished rigs, a mountain of debt, and no way to pay for any of it. The stock has lost more than 99.5% of its value since the beginning of 2014.

The problem for Seadrill Partners was that Seadrill had used some of its assets to guarantee some of Seadrill Partners' credit. If Seadrill filed for Chapter 11 bankruptcy protection -- which it has been saying for some time it intends to do -- that could have caused big problems for Seadrill Partners.

Luckily, Seadrill Partners was able to make changes to its credit agreements so that it was guaranteeing them with its own assets and not its parent's. That will insulate Seadrill Partners from any potential bankruptcy, which is a huge deal for Seadrill Partners shareholders, since Chapter 11 seems certain for the parent. Even better, Seadrill Partners resumed cash distributions to shareholders, paying $0.10 per share for each of Q1 2017 and Q2 2017.

Now what

Comparatively, Seadrill Partners is on much firmer footing than its parent. It has no rigs under construction, and only three of its 11 rigs are currently idle -- two of them for less than six months. It's resumed its cash distributions to shareholders. While its shares have lost 90% of their value since early 2014, that's not nearly as bad as Seadrill, and the price -- for the time being, anyway -- seems to have somewhat stabilized. 

Seadrill Partners isn't likely to see its fortunes improve until there's an oil price recovery, and it's anyone's guess when -- or if -- that will happen. If you're dead set on buying an oil rig operator, Seadrill Partners isn't a bad choice, but I can't exactly recommend any of the players in this beaten-down industry. As for parent Seadrill, Chapter 11 is pretty much a foregone conclusion. If you have shares, you may want to sell now while you can still get anything for them, even if it's just cents on the dollar.

John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.