Energy & Mining

Seadrill LLC (NYSE:SDLP) Prospects Looking Dim

Seadrill LLC (NYSE:SDLP)

Seadrill LLC (NYSE:SDLP) might be filing for bankruptcy. Seadrill is a UK-based limited liability company formed by Seadrill Limited (NYSE:SDRL) to own, operate and acquire offshore drilling rigs. The company’s drilling rigs are under long-term contracts with major oil companies such as Chevron, Total, BP and ExxonMobil. Yearly performance looks good – up 47%. However that number needs to be put in the context that the previous year was when SDLP shares were hitting all-time lows. When the downturn in the -off-shore drilling sector began in 2014, SDLP was trading above $20.

Wall St. analysts projected Seadrill LLC (NYSE:SDLP) Q4 revenues at $353 million – actual was $353.3 million. It is a small win for the company but that figure still represents a 24% YoY drop. Operating income dropped about 20% from the previous quarter and operating expenses increased around 3% from the prior quarter. However deeper in their earnings announcement was what cause SDLP shares to plummet:

The short to medium term outlook for the offshore drilling market continues to be challenging… We continue to expect utilization to get worse before it gets better as more units become available than are required… Discussions continue with stakeholders and potential new money investors, however given the status of those discussions, Seadrill Limited has indicated that it will be challenging to finalize a fully consensual agreement before April 30, 2017. In the event a consensual restructuring agreement is not concluded or an agreement to an extension is not reached, Seadrill Limited is also preparing various contingency plans, including potential schemes of arrangement or chapter 11 proceedings.”

On the release of this ominous press release, Seadrill LLC (NYSE:SDLP) shares dropped over 20%. Given the political landscape and the expectation that barriers to oil drilling will be dropping off faster than they were enacted, it is not unrealistic to believe that energy prices will remain flat or lower. Seadrill LLC (NYSE:SDLP) would, in that case, probably need to review alternatives.

Ticker Symbol SDLP
Last Price a/o 4:44 PM EST  $                      3.62
Average Volume                    807,630
Market Cap (mlns)  $                  329.06
Sales (mlns) $1,710.00
Shares Outstanding (mlns) 90.9
Share Float (mlns) 49
Shortable Yes
Optionable Yes
Inside Ownership 0.00%
Short Float 1.40%
Short Interest Ratio 0.85
Quarterly Return 9.02%
YTD Return -11.74%
Year Return 46.84%

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy. 

About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading.

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Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading. Steve keeps his head in the game by looking for, and writing about, small companies that often get overlooked by the big investment firms.

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