Seadrill Declines Most in 2 1/2 Years as Dividend Growth Paused

Seadrill Ltd, the world’s biggest drilling company, fell the most in 2 1/2 years after postponing plans to boost its dividend and warning that the rig market will grow slower than expected as oil companies scale back spending.

The London-based company, controlled by billionaire John Fredriksen, fell as much as 7.8 percent, the most since Aug. 8, 2011, and traded 6.3 percent lower at 213.5 kroner as of 3:50 p.m. in Oslo. About 3.5 million shares had been traded so far today, almost four times the average daily volume during the past three months.

The market for drilling rigs “may show slower growth” in 2014 and 2015 than previously expected, Seadrill said in its quarterly report today. “In the current market, the board sees limited value in increasing the current quarterly distribution” beyond the $0.98 it announced for the fourth quarter, it said. That’s up from $0.95 in the previous three months.

Oil and gas producers including Royal Dutch Shell Plc and Statoil ASA have scaled back investment plans to preserve cash flow as costs increase. That leaves them with “limited opportunities to fund exploration activities” and will push demand for drilling units into 2015 and 2016, Seadrill said.

While the company’s fourth-quarter earnings before interest, taxes, depreciation and amortization of $768 million was in line with the average of 23 analyst estimates, Seadrill said Ebitda will remain at that level or fall in the first quarter due to operational challenges.

Debt Rating

“Operational results for the fourth quarter were strong, but were overshadowed by operational downtime in the first quarter that forces us to take down our Ebitda forecast for 2014,” Nordea Markets said in an e-mailed note. “The near-term pause in the growth of dividends also triggers estimate cuts. We expect the share price performance to remain soft today, mainly on the back of the dividend news.”

The broker also cut its rating on Seadrill’s U.S. bonds to market perform from outperform after the drilling company said it won’t seek a public rating on its debt before March 14. That will result in the coupon on its outstanding dollar bonds rising by 50 basis points, Seadrill said.

The yield on Seadrill’s 5.625 percent note maturing in 2017 declined to 4.6 percent from 4.62 percent yesterday, according to DNB ASA pricing compiled by Bloomberg.

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