- Company will announce funding plan in first half of 2016
- Driller won new contract for West Eclipse rig offshore Angola
Seadrill Ltd., the oil-rig company controlled by billionaire John Fredriksen, beat profit estimates as it deepened cost cuts to counter a slump in demand for offshore drilling. The stock rose as much as 10 percent in Oslo.
The company, which is struggling with debt in a dismal rig market, said it would announce a funding plan in the first half of the year, while cost cuts were exceeding expectations. Net income rose 82 percent to $285 million in the fourth quarter, beating the $238 million average estimate in a Bloomberg survey.
“During the fourth quarter we experienced our best operational quarter of the year, while continuing to reduce our cost base,” Chief Executive Officer Per Wullf said in a statement. “In the face of the severe downturn in our industry our priorities for 2016 are to conserve cash and address our financing needs.”
Seadrill, which also said it won a new contract for one of its rigs in Angola, traded 7.8 percent higher at 15.25 kroner a share as of 9:06 a.m. in the Norwegian capital. The stock is down 83 percent over the past 12 months.
Offshore drillers including Seadrill’s rivals Transocean Ltd. and Ensco Plc. are suffering as the worst crude market in a generation has led oil companies to cut spending. That has reduced demand for their services just as a wave of new rigs inflated supply. The world’s largest offshore rig contractors are expected to see sales tumble 25 percent this year and at least another 10 percent in 2017, according to Bloomberg Intelligence.
Seadrill’s cost savings were $832 million in 2015, exceeding an earlier target of about $600 million. Savings this year will amount to a further $260 million, compared to a previous goal of $200 million, the company said.
In addition to a falling market, Seadrill is struggling with a debt burden that by far exceeds that of its competitors. Total debt at the end of 2015 was $10.7 billion, according to the quarterly report.
The company has started a restructuring process involving its banks, bondholders and shareholders, Wullf said in an interview last month. That will involve raising at least $1 billion in new capital -- more than its current market value -- according to analysts from Nordea Bank AB and DNB ASA.
Seadrill’s new two-year contract in Angola for its West Eclipse rig has a value of $285 million, though it also reduces the backlog for another rig, the West Polaris, by $95 million, resulting in a net order-backlog effect of $190 million, the company said.
Earnings before interest, tax, depreciation and amortization, which were in line with estimates at $513 million in the quarter, are expected to drop to $450 million in the first quarter, Seadrill said.