Blowout-Preventer Issues Hamper Seadrill’s Q4 Results

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Seadrill’s fourth-quarter results were again impacted by blowout-preventer (BOP) issues, which have tripped up one of the industry’s strongest operators in the latter stages of 2012. Quarterly revenue was $1.2 billion compared with $1.1 billion in the prior quarter, and operating income improved sequentially to $441 million from $413 million.

Deepwater utilization levels improved to 86% from 82% in the prior quarter, which contributed to the improved sequential performance, but continued BOP issues and a delay in starting the West Hercules contract with Statoil STO kept the utilization numbers below the 95%-plus level Seadrill has historically targeted.

The issues will continue in the first quarter of 2013, as the need to replace bolts for Seadrill’s BOP connectors due to the Bureau of Safety and Environmental Enforcement’s notice partially caused an incremental 117 days of downtime for its floater fleet. Going forward, Seadrill noted continued strong interest in its deepwater rigs and is in discussions for most of the rigs that are available in 2014 and 2015.

On the jack-up side, Seadrill also sees strong growth prospects. The company ordered two new jack-ups during the quarter and increased its ownership stake in Asia Offshore Drilling AOD to 66%. In addition, Seadrill provided the firm with a short-term loan to enable it to take delivery of its first jack-up. Asia Offshore Drilling continues to work on a long-term financing solution, and analysts anticipate Seadrill could be involved there as well, particularly as AOD has two additional jack-ups that will be delivered in 2013. Given the number of rig deliveries Seadrill has from 2013-15, it anticipates a 50% increase in operating cash flows over this time frame, which is reasonable forecast in our view.

 

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