Seadrill Earnings: An Early Look

Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Seadrill(SDRL) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Seadrill has benefited immensely from the huge increase in ultra-deepwater drilling activity around the world. Let's take an early look at what's been happening with Seadrill over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Seadrill

Source: Yahoo! Finance.

Will Seadrill find buried treasure for investors?
Seadrill hasn't inspired much confidence from analysts lately, as they've reined in their consensus forecast for the most recent quarter's earnings by $0.19 per share in just the past three months, with an even bigger pullback for full-year 2013 estimates. The stock has also cooled off, falling about 2% since late November in a strong market.

Seadrill has profited from the huge increase in interest in ultra-deepwater drilling. With areas off the coast of Brazil and western Africa showing huge promise, exploration companies have been paying top-dollar day-rates on rigs and drillships.

So far, the huge demand has given players throughout the industry massive backlogs, making competition less important than it would be in a less favorable environment. Transocean (RIG -2.69%) actually has the biggest backlog in the industry at nearly $30 billion compared to $21 billion for Seadrill. Drillers are also boosting their contract lengths to lock in favorable rates, with Noble (NEBLQ) having seen its average contract extend 50% longer than in 2011.

One interesting move that Seadrill made recently was to issue shares of Seadrill Partners (SDLP), a master limited partnership that directly owns rigs and drillships. For now, the MLP's distributions are actually less than the stock's yield, but if the MLP's growth ramps up to the extent that Seadrill hopes, that could potentially change in the future.

In its quarterly report, Seadrill needs to demonstrate that last quarter's disappointment was a temporary anomaly due to one-time rig relocations and scheduled maintenance. If it can do so, it should be able to get back on its former growth track in short order.

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