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SeaDrill Extends Credit Facility for North Atlantic Drilling

Zacks Equity Research

Offshore drilling contractor SeaDrill Limited SDRL recently extended the revolving credit facility granted to its subsidiary North Atlantic Drilling Ltd by adding $100 million to the short-term loan under the facility.

The credit arrangement was created on Jan 31 to lend $25 million to the North Atlantic Drilling unit. The maturity period of the original arrangement was for three months. However on Apr 25, the facility was again amended to increase the credit amount to $50 million and maturity period was also extended till Jun 30.

The recent amendment has increased the loan amount to $150 million and pushed back the maturity date from Jun 30 to Jul 31.

SeaDrill, being one of the worst sufferers of the industry downturn, carries the heaviest debt burden in the oil rig industry. The company is grappling with $14 billion debt. 

The company has been contemplating restructuring under bankruptcy for quite some time now and is in advanced talks with the lenders. The company expects to conclude the negations with the creditors by the end of June. However, with the one-month extension in the credit facility provided to North Atlantic Drilling, investors can expect that the company will release its restructuring plans by the end of next month.  Investors are concerned as they are expecting minimum return from their existing shares.

In a separate development, North Atlantic Drilling secured a three month contract from Malaysian integrated player Petronas for the West Capella ultra-deepwater drillship.  The rig is expected to become operational between Oct 1 and Dec 31. Earlier this month, the company received an award for semi-submersible West Hercules. This follows a 10-year $1.4 billion contract for jack-ups – West Elara and West Linus – with oil giant ConocoPhillips COP.

The recent contract awards secured by North Atlantic Drilling bode well for SeaDrill. Apart from generating revenues, the contracts might be used as a tool in restructuring negotiations with creditors. Further, the company has also extended its deal with Rosneft. The move will add to the significant backlog of Rosneft projects that have been delayed due to low oil prices.

Zacks Rank & Key Picks

Headquartered in London, SeaDrill has a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing four quarters at an average of 97.13%.

However, the company’s price performance lacks luster. In the last one year, SeaDrill’s stock has underperformed the Zacks categorized Oil & Gas-Drilling industry. During the aforesaid period, SeaDrill’s shares have crashed more than 89%, compared with the 32% decline for the broader industry. SeaDrill currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the broader energy space include Viper Energy Partners LP VNOM and Legacy Reserves LP LGCY. While Viper Energy sports a Zacks Rank #1(Strong Buy), Legacy Reserves carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Viper Energy Partners delivered positive earnings surprise in each of the trailing four quarters, the average being 20.35%.

Legacy Reserves posted positive average earnings surprise of 11.84% in the last four quarters.

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