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Slowing Offshore Drilling Market Impacts Seadrill

By Matthew DiLallo – Feb 25, 2014 at 9:12AM

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Seadrill sees “limited value” in future dividend increases given the current market conditions.

Seadrill (SDRL) reported fourth-quarter results before the market opened this morning. The contract offshore driller reported net income of $281 million, or $0.49 per share. Operating profit was much higher at $568 million, which was up 20% from the $471 million Seadrill reported in the third quarter.

Seadrill sold several assets during the quarter to buyers including its affiliate Seadrill Partners (SDLP). The company sold the tender rig T-16 to Seadrill Partners, as well as part of two semisubmersible rigs. Seadrill also acquired a high specification jack-up in the quarter, while both companies announced several new drilling contracts or extensions.

Overall, Seadrill's fleet of floaters and jack-ups had high use levels during the quarter. Floaters had an economic utilization of 94%, which was in line with its third quarter. Meanwhile, economic utilization for its jack-up fleet was 98% on the quarter, slightly higher than the 97% the company saw in the preceding period.

Seadrill's solid results and cash flow enabled the company to raise its dividend by $0.03 to $0.98 per share. However, that's likely to be the last dividend increase the company hands out to investors for a while. In a statement commenting on market conditions, the company noted that "2014 and 2015 may show slower growth in activity levels than earlier anticipated." Because of this Seadrill sees "limited value" in increasing its own dividend further, preferring to preserve its cash for share buybacks or future dividends.


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. 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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