Seadrill

By sunserai, February 19, 2014

Travis, I’ve seen several articles lately on Seadrill and they range from buy to avoid.  Please provide a little unbiased information on this company.

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Travis Johnson, Stock Gumshoe

I can’t necessarily give unbiased information on much of anything, I have biases the same as anyone else — I particularly have biases on this one, since I have owned the shares for many years.
Here’s what I wrote for the Irregulars in my Annual Review last month, in part:

“I still think SDRL is a good hold, and I continue to reinvest my dividends partly because I think the company will have ample access to financing to support the dividend for many years given their strong backlog and their ability to sell assets to their captive MLP or do other financial engineering, but if we see the market let the shares drop below a 10% yield (based on the last dividend, which would mean annualized dividends of $3.80) and the shares don’t recover quickly, that will be a real sign to me that investors are losing faith in these shares. If the shares fall below $38 and stay that low for more than a cup of coffee, I’ll have to take another look and reconsider — we’re pretty close to that level now, so I’m holding and reinvesting but also watching warily. Beware of a sharp rise in interest rates, or a sharp fall in the price of oil.”

The stock has fallen below $38, I continue to hold and continue to think about that position but haven’t done anything different yet. I like the recent deal with Pemex, which shows just how flexible Seadrill continues to be in its financial engineering, and they have among the best, newest fleets in the world — but they’re also more levered and aggressive in ordering newbuilds than most, so they can be a volatile bellwether for investor sentiment about offshore drilling in general. I believe they’re expected to report next week, I think on Tuesday, at which time investors will be listening closely to what they say both about the rig market and about the dividend.

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