SeaDrill (SDRL) Posts Earnings In Q1, Revenues Lag Estimates

Offshore contract driller SeaDrill Limited (NYSE:SDRL) reported first-quarter 2017 earnings per share – excluding one-time items – of 6 cents. The bottom line surpassed the Zacks Consensus Estimate of a loss of 5 cents. The better-than-expected results came on the back of lower operating expenses during the quarter. The company delivered a strong 97% economic utilization of its floater fleet and 98% on its jack-up fleet.

However, the bottom line deteriorated from year-ago adjusted earnings of 26 cents per share owing to lower revenues.

Total operating revenue of $569 million in the reported quarter was down 36% from $891 million in first-quarter 2016. The top line also missed the Zacks Consensus Estimate of $584 million. Lower revenues are attributed to the West Vigilant and West Epsilon drillships which remained idle during the quarter.

EBITDA in the reported quarter was $291 million, as compared with $528 million in the year-ago quarter.

Segmental Analysis

Floaters: This segment reported revenues of $369 million, compared with $616 million in the year-ago quarter. Net operating income was $49 million as against the prior-year quarter figure of $237 million.

Jack-up Rigs: The segment registered revenues of $181 million, as against $246 million in the prior-year quarter. Net operating income plummeted to $33 million from the first-quarter 2016 figure of $86 million.

Other: Revenues of $19 million were lower than $29 million reported in the prior-year quarter. Operating income of $1 million compared unfavorably with the prior-year profit of $5 million.

Backlog

As of May 24, 2017, total order backlog at SeaDrill was $3.4 billion. This comprised $1.4 billion for the floater fleet and $2.0 billion for the Jack-up fleet.

Expenses

Like other offshore contract drillers, SeaDrill has also decided to focus on controlling costs amid plummeting crude prices. The company has trimmed its headcount from 6,995 at year-end 2015 to 5,196 at the end of the first quarter.

SeaDrill incurred operating expenses of $491 million in the reported quarter. This reflects a decline of 13.6% from the year-ago quarter figure of $568 million. The decrease is primarily attributed to the lower vessel and rig operating expenses which decreased about 27% in the quarter from the year ago figure of 290 million.

Capital Expenditure & Balance Sheet

As of Mar 31, 2017, SeaDrill had cash and cash equivalents of $1,462 million and long-term debt of $5,948 million. The debt-to-capitalization ratio was approximately 38.3%.

Seadrill Limited Price, Consensus and EPS Surprise

Guidance

The company projects second-quarter EBITDA to decrease to $240 million due to three important drilling rigs which are expected to become idle in the second quarter. The company forecasts net income of $40 million in the second quarter.

Restructuring Update

SeaDrill which is battling with a total of $14 billion debt and liabilities is in advanced discussions with lenders regarding the restructuring of debts ahead of Jul 31.

The company has also elected Anton Dibowitz as its new CEO effective Jul 1. Dibowitz will replace Per Wullf who will continue to serve as the director of the company.

Zacks Rank and Key Picks

Headquartered in London, SeaDrill is one of the leading offshore drilling contractors in the world. The company has one of the youngest drilling fleet among the offshore drilling contractors and is capable of operating in challenging environments.

SeaDrill, operating under the Zacks categorized Oil and Gas Drilling industry, currently carries a Zacks Rank #3 (Hold).

Some better-ranked players from the broader energy sector include McDermott International, Inc. (NYSE:MDR) , Canadian Natural Resources Limited (TO:CNQ) and Delek Logistics Partners, L.P. (NYSE:DKL) . All the three firms sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

McDermott reported positive earnings surprise in each of the last four quarters, the average being 387.5%.

Canadian Natural Resources is expected to post year-over-year growth of 720% in its earnings in 2017.

Delek Logistics is likely to deliver year-over-year growth of 16.1% in its earnings in 2017.

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