SeaDrill Limited (SDRL) slipped to a 52-week low of $32.37 on Sep 11. Several factors like declining dayrates, heightened competition and a weak offshore drilling market scenario have weighed on the company’s earnings. This was reflected in the stock price.
Since the beginning of 2014, the Norwegian offshore drilling contractor’s shares have lost over 18%. Moreover, the company's shares have slumped over 10% since the release of its second-quarter results on Aug 27, 2014.
What Led to the Share Price Decline?
The world’s largest offshore drilling company suffered as a result of low rig demand and an over supply of new vessels in the offshore drilling market. SeaDrill CFO Rune Lundetrae expects this trend to continue through the remaining half of the year and into 2015 as well. Dayates for ultra-deepwater rigs, which peaked to around $650,000 last year, have fallen to about $375,000–$500,000, making it difficult for companies to book profits. Moreover, rising drilling costs and low cash position have reduced contracts from oil companies.
Other offshore drillers like Transocean Ltd. (RIG), Hercules Offshore, Inc. (HERO), Ensco plc (ESV) and Diamond Offshore Drilling, Inc. (DO) have also experienced a similar fate, indicating that the overall offshore drilling industry has been a laggard this year.
Lundetrae also stated that the restrictions imposed by the U.S. on Russia could impact the recent $4.25 billion deal between the nation’s largest oil producer, Rosneft and SeaDrill’s unit, North American Drilling (NADL).
Notably, SeaDrill had recently announced that dividend payment would not be affected till 2016. While this is good news for current stakeholders, continuing with dividend payout at the expense of growth could pose concerns for long-term investors.
However, considering its industry leading position and strong portfolio of assets, SeaDrill is expected to benefit when the market gains momentum.
Currently, SeaDrill carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. market in the next one to three months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment