Seadrill Delivery Delay — Stock Suffers

By Travis Johnson, Stock Gumshoe, July 15, 2008

Seadrill, the stock I’ve written most about in this space and the first idea that I shared with Irregulars, is doing quite poorly — and today brought some more unfortunate news.  Seadrill’s West Polaris has been delivered and is leaving Korea for Brazil tomorrow, which is good, but another newbuild has been delayed for a few months.  West Phoenix, which is a semisubmersible rig, was delivered from the yard at the end of March but is undergoing testing in Spain now and apparently has run into something at least a little bit troublesome — so instead of going into operation at the end of August, it looks like it will now be October.  This one doesn’t have quite as far to go, it will be working for Total in the North Sea, but it’s still going to mean the tasty dayrates that this rig commands will be delayed for a couple months.

Add that to the pasting that the market is taking in general, worldwide, and I suppose it should not be surprising to see Seadrill shares dip below $28 today.  I still expect very good things in the long term, and dividends of over 10% next year as more financial engineering deals are made and the high dayrates from their deepwater rigs begin to come in — but the risk still remains.  They are expecting delivery of a large number of rigs in the next 6-9 months, and I have no way to know whether they will see further delays in the yard, or in testing or transport, or in going operational onsite.

My guess is that any further sale-leaseback deals that free up capital will boost the share price, as will specific announcements about future dividends, and, on the other side, any further delays in commissioning new rigs or drillships will depress the share price.  I continue to be somewhat flabbergasted at the price of oil, but as long as it’s moving around between $110 and $150 I wouldn’t expect oil prices to move these shares too much — the company has only indirect exposure to oil prices, in that future oil price expectations color a company’s willingness to commit to an expensive rig five-ten years out, and I still think the general thought that “oil will be expensive in ten years” is hard to argue against.

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