I was looking at the drilling companies, comparing metrics.
Rowan, Pride and Ensco have lower price to book cost.
Seadrill has more debt than all of the following combined: Seahawk, Noble, Diamond Offshore, Hercules, Pride Atwood, Ensco and Rowan.
The economies around the world are in a precarious spot. Cuts to wages and retirement and benefits are being cut almost everywhere. In the U.S. jobs and benefits are in contraction. California with a deficit of $20B is going to have to cut a ton of jobs during the next year.
All these factors impact oil and energy use. Could oil go to $50-60 a barrel, sure.
With more debt than 7-8 companies combined I would think Seadrill is in a precarious spot compared to the other drillers.
I would think having more debt than any other company in the sector would be bad, here they have more debt than almost all the companies in the sector. What am I missing here? Every company that has more debt than everyone else usually pays a price for that leverage and risk profile.
Your opinion that oil could go to 50 / 60 a barrel, while entirely possible as would a $20 to $30 price be, all of these prices are highly unlikely given the increased demand from india and China. Until 5 years ago most people in these countries never owned a car. In fact in China by law no individual could own a car. That has all changed and so has the on going demand for oil.
The only possible item which might cause oil to drop to 60 would be a hugh recession, which does not seem possible at this time. While the recovery is not going at the speed of light, it does seem to be on track at this time.
Also given the low interest rate environment SEADRILL should be able to refinance its debt at a lower cost.
SDRL has a lot of dept because they just bought a bunch of rigs. If you look at their fleet of deep water rigs, most of them are brand new. Compare that to DO, where the bulk of the fleet was build in the 70's. The question is what is going to happen with these old rusting rigs in a new regulatory environment? I'd stick with SDRL.
re: large debt is consistent with how SFL is run. Reputable commentators over the years have said that SFL was the SAFEST shipping firm, despite the fact that it had probably the highest debt level. That is due to the manner John Fredriksen conducts the businesses, with reputable customers and long term contracts that do not include excessively burdensome or risky terms to the customer.
Another thing to remember is that we are in a time of record low interest rates, so that is advantageous to the borrower, as long as the business cash flow safely supports loan payments and distributions, which continues to be the case with the Fredriksen companies.
Another thing to remember is that the loan covenants are monitored closely by the banks in this uncertain economic time...SDRL has state of the art equip with high vessel valuations and can indeed service its debt (in this day and age the bankers want their money first and that goes for SFL too)and comfortably pay a healthy dividend as well (with future cash flow backed up by with a solid backlog)...I'm a buyer if we do get to the mid teens...glta!
It looks like they paid down debt to the tune of $2.5 billion and still paid $199 million in dividends. Not bad -- no?
see page 72 of 126:
I tried to open documents at their investor section at their website to look at quarterly reports and presentation and could not get in, anyone else have trouble?
This is the first company I have had that problem with.
Norwegian magnate John Fredriksen - that is the answer to your question, "What am I missing?"
He successfully obtains and manages long term debt for his companies like Ship Finance, Frontline, and Seadrill, to be consistent with their long term contracting terms. And it provides for a superior ROI.
Look at the book values - SDRL is now priced below its book value. And what is represented in that book value? The newest, most advanced inventory of drilling rigs, as compared with those other companies.
Another thing missed is that SDRL is majority owner of a significant shallow driller, Scorpion.
Apparently sellers at this price are either desparate for cash or believe that nations of the world may be willing to give up their very large revenues from deep water drilling permits and the oil energy source that results.