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Seadrill Limited's Shares Are Sinking Today Despite Some Good News

By Tyler Crowe - Jan 15, 2016 at 11:48AM

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Even though the company announced it was able to put off paying $800 million for new drillships this year, the market's sending shares down anyway.

What: Shares of Seadrill Ltd. (SDRL) are down 10% as of 11 a.m. as the entire energy sector is getting hammered yet again on low oil prices. This decline comes even after the company announced it was able to negotiate the delayed delivery schedule for two of its rigs under construction.

So what: The two new rigs -- the West Aquila and West Libra drillships -- were scheduled to come on line in the second quarter of 2016. But thanks to the renegotiation with the DSME shipyard, West Aquilla's delivery will be pushed back to the second quarter of 2018 and West Libra won't be delivered until the first quarter of 2019.

In total, moving the delivery of these drillships for a couple of years means that Seadrill won't have to make the $800 million payment that will be due upon delivery of these rigs in 2016. For a company that has been dealing with a mountain of debt and a large slate of newbuilds still under construction, this is a major sigh of relief. It also means that these new rigs won't be added to Seadrill's fleet in the coming months without contracts in place -- a situation that would have eaten into operational costs this year.

Now what: Seadrill isn't out of the woods yet. It still has several jack-up rigs that are set to be delivered this year, and there isn't a whole lot of appetite from producers to hire rigs and drill for more oil today. The company does have all but one of its drillships -- the biggest moneymakers in its fleet -- contracted beyond 2016 at very favorable rates, so it's got that working for it. If oil prices -- and as a result, demand for more offshore drilling -- were to start showing signs of life again by 2016-2017, then Seadrill may be able to come back from this long, hard slide. If oil prices were to remain low much longer than that, though, it could spell trouble.

Tyler Crowe owns shares of Seadrill. You can follow him at Fool.com or on Twitter @TylerCroweFool.

The Motley Fool recommends Seadrill. Try any of our Foolish newsletter services free for 30 days. 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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