SDRL - Seadrill announces second quarter 2013 results

Consolidated revenues for SeaDrill in the second quarter of 2013 were US$1,268 million compared to US$1,265 million in the first quarter of 2013. The increase was despite the sale of the tender rig business, which operated for only 30 days in the quarter, resulting in a US$100 million revenue decline from 1Q 2013. Overall improvement in fleet performance more than offset this revenue reduction.

Operating profit for the quarter was US$507 million compared to US$552 million in the preceding quarter. The decrease is driven by gain on sale of the West Janus in the first quarter, offset by lower operating and SG&A expenses during the second quarter.

*      Seadrill reports its best operating results and net income ever and generated second quarter 2013 EBITDA*) of US$665 million

*     Seadrill reports second quarter 2013 net income of US$1,750 million and earnings per share of US$3.68

*     Seadrill increases the ordinary quarterly cash dividend by 3 cents to US$0.91

*     Economic utilization for floaters increased to 94% in Q2 2013 from 92% in Q1 2013

*     Economic utilization for the jack-up fleet in Q2 2013 was 98%, down from 99% in Q1 2013

*     Seadrill secured a three-year contract for the newbuild drillship West Neptune with a total estimated revenue potential of US$662 million

*     Seadrill realized a gain of US$1,256 million from the sale of the tender rig division to SapuraKencana Petroleum for a total consideration of US$2.9 billion

*    Seadrill completed the sale of the tender rig T-15 to Seadrill Partners LLC (SDLP) for a total consideration of US$210 million

*    Seadrill ordered two jack-ups for a total estimated project price of US$230 million per rig, with deliveries in 4Q 2015 and 1Q 2016

*     Seadrill and SapuraKencana joint project secured an eight year contract for three Pipe Laying Support Vessels with a total estimated revenue potential of US$2.7 billion

*     North Atlantic Drilling completes sale and leaseback transaction for the newbuild harsh environment jack-up West Linus for US$600 million


Subsequent events

*     Seadrill appoints Per Wullf as CEO to take over from Fredrik Halvorsen

*     Seadrill orders four ultra-deepwater drillships for an estimated project price below US$600 million per rig, with deliveries scheduled for the second half of 2015

*     Seadrill orders two jack-ups for an estimated project price of US$230 million per rig, with deliveries in the second and third quarters of 2016, respectively

*     Seadrill reaches 50.1% ownership in Sevan Drilling and launches mandatory offer for all outstanding shares which closed on August 22, 2013

*     Seadrill secures a 180 day contract for the newbuild ultra-deepwater drillship West Tellus with a total estimated revenue potential of US$150 million

*     Seadrill secures a 2.5 year contract for the jack-up rig West Freedom with a total estimated revenue potential of US$222 million

*     Seadrill secures a one year contract extension with Talisman in Malaysia for the jack-up rig West Vigilant at US$167,000 per day

*     North Atlantic Drilling is awarded an extension of the current drilling contract, in addition to a new drilling contract for West Navigator, securing employment to December 2014 with a total estimated revenue potential of US$98 million

Click here for complete earnings report and consolidated financial information

Here's a FREE Trend Analysis for SeaDrill....ticker SDRL

Still Doubting COT Favorite SeaDrill? SDRL

If you are still doubting the crew at Seadrill's (SDRL) ability to keep up with the current dividend this may be yet another reason to....think again. The latest news of a $4 billion commitment for the use of three offshore rigs in the Gulf of Mexico should assuage concerns about the company's ability to contract out all the rigs it has ordered as speculation rigs. Calculating the contract works out to $576,800 per rig per day over six plus years and increases SDRL's contract revenue backlog by nearly a third.

Here is your free trend analysis for SDRL

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Looks like we are in good company SDRL

Looks like we are in good company. Most of you know we SeaDrill, ticker SDRL, is one of our COT fund favorites.....

Vanguard Windsor II fund manager Jim Barrow is "nervous" about oil and energy stocks, but is bullish on Seadrill as "the dominant factor" in high tech drill ships. SDRL has the world's newest fleet, Barrow exults: "Their boats rent for more than other people’s do. It is a great company run by Norwegians who know exactly what they are doing."

Seadrill (SDRL) Releases First Quarter 2012 Results

Consolidated revenues for SeaDrill in the first quarter of 2012 amounted to US $1,050 million as compared to US $1,059 million in the fourth quarter 2011. Operating profit for the quarter was US $456 million compared to US $436 million in the preceding quarter.

Net financial items for the quarter showed a gain of US $24 million compared to a loss of US $501 million in the previous quarter. The previous quarter included a US $463 million impairment charge on our 39.9 percent ownership in Archer. While this quarter includes a gain of US $91 million on derivative financial instruments compared to a gain of US$33 million in the previous quarter.

US $63 million of the gain is related to the sale of our holdings in Ensco plc. The rest is related to unrealized gains on currency forward contracts, total return swap arrangements and interest rate swaps. Income taxes for the first quarter were US $41 million unchanged from the fourth quarter. Net income for the quarter was US $439 million or basic earnings per share of US $0.89.

Read the entire SeaDrill 1st Quarter Earnings Report

Gold & Gold Miners Are Closing in on a Major Bottom

Who Offers the Highest Dividend Among the Offshore Drillers?

It's SeaDrill! As any of our regular readers know SeaDrill is a COT Fund favorite, today the guys at Power Hedge give us an insight into the SDRL business model.....

SeaDrill Ltd. (SDRL) currently offers the highest dividend yield of any major offshore drilling company. At the time of writing, SeaDrill pays an annualized dividend of $3.20 which gives the stock an 8.74% yield. Here is how that compares to other major offshore drilling companies:

click to enlarge images

Source: International Hedges

As we can see, SeaDrill is by far the highest-yielding dividend stock in the group. One reason for this lies with the company's financial model which is somewhat different than its peers. Most dividend-paying companies set their dividends at a level that management expects to be sustainable over an extended period of time. SeaDrill's philosophy, on the other hand, is summed up quite well by a statement given on page 21 of the company's annual report, "Our primary objective is to profitably grow our business to increase long term distributable cash flow per share to our shareholders." In effect, SeaDrill pays out a significant percentage of its operating cash flows to investors and finances its growth through debt.

This business model has worked out quite well for SeaDrill and its stockholders. SeaDrill's fleet has grown rapidly since 2005. In that year, the company's fleet consisted of five rigs. Since that time, the company's fleet has grown to 62 rigs at the end of March 2012.

Investors in the company have also been amply reward for their investment. SeaDrill began trading on the NYSE on April 15, 2010. However, the company began trading on the Oslo Børs exchange well before then. The company was listed on the exchange in 2005. Since that time, it has delivered a rather impressive run.

SeaDrill has also delivered substantial rewards to its shareholders in the form of dividends over the years. The company began paying dividends in the fourth quarter of 2007 according to SeaDrill's website.

The dividend has had significant volatility from year to year and even from quarter to quarter. This is because of the company's dividend philosophy which I mentioned earlier in this article. Essentially, the dividend tends to rise and fall with the company's operating cash flows.

It is because of this dividend philosophy that I believe that SeaDrill will increase its dividend going forward. SeaDrill generates most of its cash flows through the rigs that it manages. The company contracts out the rigs in its fleet to oil and gas companies to perform drilling operations in offshore locations all over the world. In exchange, the oil and gas companies pay a dayrate to SeaDrill for the use of these rigs.

The fundamentals for the offshore drilling industry are quite strong and getting stronger. In a recent article posted here on Seeking Alpha, I stated that dayrates are currently back up to the highest levels that were reached during the previous cycle. There is evidence that dayrates could climb even higher still. SeaDrill has 25 rigs that will be available to be contracted out between now and the end of 2014, excluding newbuilds, according to the company's most recent fleet status report. Nine of these units are ultra-deepwater floaters, per the company's fourth quarter press release. This is important because ultra-deepwater rigs carry the highest dayrates and the highest profits. As these rigs come off of their current contracts, SeaDrill should be able to obtain new contracts for these rigs at higher dayrates due to the prevailing tight market. This should increase the company's revenues and operating cash flows.

In addition to re-contracting out existing rigs, SeaDrill has a large newbuild program that is likely to increase the company's operating cash flows. SeaDrill has been on something of a building spree lately and has ordered four new rigs from shipyards since the beginning of April. The newly ordered rigs consist of one ultra deepwater drillship, one new tender assist rig, and two ultra deepwater semisubmersible rigs, one of which will belong to SeaDrill's 74%-owned subsidiary, North Atlantic Drilling (NATDF.PK). As SeaDrill stated on May 4, the company now has a total of eighteen rigs under construction. These rigs should significantly increase SeaDrill's operating cash flows upon leaving the shipyard. This is because these rigs will greatly increase the number of rigs that SeaDrill has contracted out and thus is able to generate revenues from.

SeaDrill looks very likely to increase its operating cash flows going forward. The combination of re-contracting out existing rigs at higher dayrates and fleet growth through newbuilds should ensure that SeaDrill will see strong growth in its cash flows through the current industry upcycle. As previously discussed, the company's philosophy is to return as much of its operating cash flows to investors as it reasonably can. Therefore, SeaDrill will likely boost its dividend even further going forward.

Get your free trend analysis for SeaDrill today!

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A Big Mea Culpa About Seadrill's [SDRL] Dividend

From guest blogger Kevin McElroy........

On March 22, 2012 I wrote an article about what I perceive to be a potential danger to investors: a dividend trap. The premise of the article is simple: investors are starved of yield - by design of the Treasury and the Federal Reserve - and Wall Street knows it. So Wall Street will likely conspire to inflate yields to draw investors into stocks.

I pointed out that famed market guru Bruce Krasting noted a tendency of companies to pay dividends from debt. He wrote: "These are referred to as Dividend Deals. The borrower takes on new debt in order to pay a stock dividend to common shareholders. (I prefer to see dividends paid from cash flow from operations, not new debt.)"

I then made a big and frankly pretty stupid mistake with reference to an example of such a company. I talked about Seadrill (NYSE: SDRL), a deep sea driller that pays a substantial dividend with a high level of debt. But I then incorrectly pointed out that Seadrill pays out MORE in dividends than it makes in earnings. I made a mistake of not really digging through the relevant SEC reports to double check my premise.

In hindsight using SDRL as an example of a debt funded dividend payer wasn't the right choice. The metric I was looking at was the company's dividend payout ratio, which based on EPS looks tenuous at best. But as some readers have suggested, a look at cash flow suggests the dividend is more reliable.

One of the keys to Seadrill's dividend success in the future is that the debt to fund expansion of new rigs appears to promise continued growth and sustainable cash flows. This debt vs. growth conversation gets into a broader discussion than I had intended with the article so I won't get into the details.

But I do stand by my point that investors need to be wary about chasing yield and do their homework to understand where those dividends are coming from - my Seadrill faux-pas being just the latest relevant (and professionally embarrassing) example of how easy it is to make foolhardy assumptions about the relevant details.

So let my mistake serve as a lesson to really make sure a company can afford to sustain its dividend.

For a final warning of how dangerous it can be to chase yield, take a look at this chart plotting dividend cutters against other classifications of dividend companies:

(click to enlarge)

Being the owner of a dividend cutter essentially means losing money over the long term. So you should avoid companies that have any potential whatsoever of cutting their dividend.

Be careful out there. It's easy to make mistakes. And they're usually expensive.

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