Seadrill Ltd. fell the most in six years after the offshore driller controlled by billionaire John Fredriksen suspended dividends as the slump in oil prices weakens demand for rigs.
Seadrill, which hadn’t frozen or cut dividends in six years, dropped as much as 19 percent in Oslo trading, the most since November 2008. The stock was down 17 percent to 118.3 kroner at 3:58 p.m., the lowest since July 2010.
“The decision to suspend the dividend has been a difficult decision for the board,” Fredriksen, chairman of Bermuda-based Seadrill, said in a statement. “However, taking into consideration the significant deterioration in the broader offshore drilling and financing markets over the past quarter, the board believes this is the right course of action.”
The plunge in crude prices since June is blowing through the oil-services industry as clients peg back spending on finding and developing fields. Transocean Ltd., one of Seadrill’s largest competitors, earlier this month wrote down the value of its fleet by $2.76 billion. Halliburton Co., the second-biggest oil-service company, is buying the third-largest, Baker Hughes Inc.
Seadrill, which paid owners $1 a share for the first two quarters this year, said in August that level was sustainable until at least the end of 2015. Today’s surprise decision will strengthen the company’s capital position by about $2 billion a year, the company said.
“Suspending dividends entirely is the most reasonable thing to do, since the market is looking so bleak,” said Robert Andre Jensen from SpareBank 1 Markets AS. “Fredriksen’s companies are known for paying dividends, but you have to focus on your chances to survive the downturn.”
By shoring up the balance sheet, Seadrill will protect itself from some financial markets, which have become “unattractive,” and give the company room to grow, possibly through acquisitions as the industry consolidates, it said.
Seadrill’s board also authorized a share-buyback program of as much as 10 percent of outstanding shares over the next 12 months.
The dividend freeze is “positive,” Janne Kvernland, an analyst at Nordea Markets, said in a note to clients. Still, it will “likely trigger a huge sell-off from yield investors which hold a considerable stake of the company, and pressure the share price in the near-term.”
Both SpareBank 1 and Nordea recommend their clients sell Seadrill shares.
Seadrill said net income fell 40 percent to $190 million in the third quarter. The company said the near-term outlook for ultra-deepwater units had become “increasingly challenging.”
The Norwegian and U.K markets will remain “soft” as long as companies like Statoil ASA, Norway’s biggest energy firm, continue to put rigs on standby or cancel contracts, Seadrill said.
Seadrill and its 70 percent-owned subsidiary North Atlantic Drilling Ltd. have also suffered from the uncertainty international sanctions have created for a deal with Russia’s OAO Rosneft, which includes $4.25 billion in offshore-rig contracts starting next year.
North Atlantic today followed Seadrill in suspending cash dividends, which have grown or been maintained since the middle of 2011, citing a decision earlier this month to delay the Rosneft deal and a “significantly weaker” market. The shares fell as much as 18 percent in New York, and traded at $2.65 as of 10:12 a.m. local time.
“The Board believes that a suspension of the regular cash dividends will be in the best interest of all our shareholders, will better position the company to withstand near-term headwinds, and is the responsible course of action,” it said in its third-quarter report. Net income rose to $70.4 million from $68.9 million a year earlier.
Exxon Mobil Corp. said last week it was looking for alternative assignments for North Atlantic’s West Alpha rig, originally due to return to Russia next year after this summer’s successful exploration campaign with Rosneft.
“We continue to advance discussions on our agreement with Rosneft,” Seadrill said. “The incremental demand for offshore drilling in Russia is more likely than ever. Our first-mover advantage places the company in pole position to grow the Russian business, even after taking into consideration the current uncertainties around commencement dates.”