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Seadrill Ltd. Stock Down 15% Today, and Other Offshore Drillers Down Big, Too: Here's What's Happening

By Jason Hall – Mar 8, 2016 at 3:23PM

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Running hard for a week can leave anyone taking a step back to breathe. A drop in oil prices seems to have precipitated that with Seadrill and several of its offshore drilling peers.

The smooth sailing in recent days was nice, but there are still rough seas ahead. Image source: Seadrill.

What: Shares of offshore driller Seadrill Ltd. (SDRL) are down 15% at 1:45 p.m. ET on March 8, joining a handful of its offshore peers that are seeing their stocks fall sharply today. Shares of Noble Corporation Ordinary Shares (UK) (NEBLQ)ENSCO PLC (VAL), and Atwood Oceanics, (ATW) are down 11%, 9%, and 5%, respectively, so far in today's trading. 

So what: Considering the crazy run that offshore drilling stocks have had over the past week or so, it was only a matter of time before a day like today happened. Before this decline, all of these companies' stocks were up huge since March 1:

SDRL Chart

SDRL data by YCharts.

There are a handful of things driving these stocks up, including:

  • Generally rising oil prices over the past month
  • News that Seadrill founder and largest shareholder John Fredriksen had freed up more than $500 million in capital that he could use to help support the company
  • A short squeeze

It's worth pointing out the latter reason in detail, as short interest has sharply increased in the sector over the past year or so:

SDRL Percent of Shares Outstanding Short Chart

SDRL Percent of Shares Outstanding Short data by YCharts.

But it's seeming that today's 3% drop in oil prices was like rain on the bullish parade of the past week. 

Now what: As nice as this run-up has been, the fact is that the offshore situation is basically unchanged over the past week. The stock movement we have seen is a product of trader speculation and short-sellers exiting their positions -- there is nothing fundamentally improving for the prospects of the industry. 

Yes, it's potentially good news that Fredriksen has raised substantial cash that he could use to help prop up Seadrill as the downturn continues, but the outlook for offshore work remains dire. There is very little new work to be had, and that's not changing at all, even with oil prices up in recent weeks. Frankly, oil prices probably need to double from here before oil producers will be willing to consider investing in offshore development. 

Bottom line: There's nothing that's material happening. The market is going to stay volatile for months to come. The increase in oil prices in recent weeks before today's drop is good, but it's only a fraction of the increases that the market needs, before investment in offshore production comes back to life. 

Jason Hall owns shares of Seadrill. The Motley Fool owns shares of and recommends Atwood Oceanics. The Motley Fool recommends 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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Stocks Mentioned

SeaDrill Limited Stock Quote
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Noble Stock Quote
Valaris plc Stock Quote
Valaris plc
Atwood Oceanics, Inc. Stock Quote
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