SeaDrill Limited SDRL apprehends softness in the offshore drilling market to remain for another two years. However, Per Wulff, the chief executive officer (CEO) of the leading offshore drilling contractor expects a turnaround in the international rig market by 2017.
Weak oil prices and oversupplied drilling rigs are the main two culprits of the rig market disaster. Persistent low oil prices have compelled the upstream energy players to lower their oil exploration and production activities, which in turn dampened demand for drilling rigs and affected bookings of offshore drillers. The rigs’ oversupply cycle added to the concerns.
Eventually, the rig rates fell more than 50% from the peak rates seen two to three years ago. In fact, SeaDrill added that rates now often fall below breakeven levels.
Most importantly, the CEO is not willing to reject rig contracts. Instead he will accept the low rates just to secure contracts. For shorter contracts, SeaDrill could accept deepwater rig day rates between $160,000 and $180,000 which was as high as $600,000–$700,000 a few years back. However, for the longer contracts, the company is not willing to accept a rig rate lower than $350,000 to $400,000 a day.
Headquartered in London, SeaDrill Limited has one of the youngest drilling fleet among all the offshore drilling contractors, which is capable of operating in challenging environments. Notably, more than 70% of the company’s floater rigs are under contract through 2016 and are expected to provide SeaDrill with a steady flow of income despite the volatile commodity pricing environment.
Currently, the company carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, some better-ranked players in the energy sector are NuStar Energy LP NS, Rice Midstream Partners LP Comm RMP and Exterran Partners LP EXLP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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