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SeaDrill to Receive $170M from Rig Contract Settlement

Zacks Equity Research

International offshore drilling company SeaDrill Limited SDRL announced that it has resolved its dispute with South Korean shipbuilder Hyundai Samho Heavy Industries Co. Ltd. over the cancelled semi-submersible rig, West Mira. Post the announcement on Mar 13, shares of the company rallied around 8% to $1.34. 

Under the terms of settlement, SeaDrill will receive $170 million in cash in March. As part of the settlement, the West Mira rig has been purchased by asset holding company Seatankers. SeaDrill plans to enter into an agreement with Seatankers to deal with West Mira’s commercial and technical management.  

West Mira was ordered in the second quarter of 2012 and scheduled for delivery by Dec, 2014. However due the inability of Hyundai Samho to deliver the rig within the stipulated timeframe, SeaDrill had to cancel the rig and terminate the construction contract.

The arbitration proceedings on the matter started in Oct 2015 and were expected to end by the first half of 2018. This early resolution of dispute has enabled SeaDrill to recoup $168 million in pre-delivery installments plus accrued interests.

Zacks Rank and Key Picks

Headquartered in London, SeaDrill is one of the leading offshore drilling contractors in the world. The company owns or has partial ownership interests in 68 mobile offshore drilling rigs comprising jackups, semisubmersibles, drillships, tender rigs and semi-tender rigs. The company currently carries a Zacks Rank #4 (Sell).

The company has significantly underperformed the Zacks categorized Oil-Gas Drilling industry over the prior three months. During the aforesaid period, while SeaDrill’s shares plummeted more than 62%, the broader industry declined around 12%.

Better-ranked players in the same industry include Pioneer Energy Services Corp. PES, Precision Drilling Corp. PDS and Parker Drilling Company PKD. All the three stocks carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pioneer Energy is expected to deliver year-over-year growth of 83.49% in earnings in 2018.

Precision Drilling reported positive earnings surprise in each of the four trailing quarters, the average being 36.31%.

Parker Drilling posted positive earnings surprise in each of the last four quarters, the average being 13.79%.

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Seadrill Limited (SDRL): Free Stock Analysis Report
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