SEADRILL Limited (OTCMKTS:SDRL) has been tethering on the brink of bankruptcy for too long, thankfully, the company has actively taken steps to ensure its survival in a period where the crash of oil prices have badly hurt its revenue and profit figures.
Take a look at the price movement below:
Seadrill Ltd. was founded on May 10, 2005 and is headquartered in Hamilton, Bermuda. It is an offshore drilling contractor providing offshore drilling services to the oil and gas industry.
Its primary business is the ownership and operation of drillships, semi-submersible rigs, jack-up rigs, tender rigs for operations in shallow, mid, deep, and ultra-deep-water areas, and in benign and harsh environments. It operates through the following segments: Floaters, Jack-up Rigs, and Tender Rigs.
The Floaters segment offer services encompassing drilling, completion, and maintenance of offshore exploration and production wells. The Jack-up Rigs segment offers drilling services, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to jack-up rigs for operations in harsh and benign environments. The Tender Rigs segment operates self-erecting tender barges and semi-submersible tender rigs, which are used for production drilling and well maintenance in Southeast Asia and West Africa.
Just in September, the company announced that it had filed for bankruptcy protection and agreed to a major restructuring plan with its senior lenders. Under the plan, the company’s lenders would extend the maturity on $5.7 billion in debt until 2020. The restructuring agreement also delivers $1.06 billion in new capital, comprised of $860 million in secured notes and $200 million of equity. The struggling driller already announced previously it was planning to file for bankruptcy protection as part of a plan to restructure its debt, although it still remains one of the world’s largest offshore drilling companies.
At the time, it was reported that firm was simply looking for a swift pass through a bankruptcy that would reduce the holdings of outside shareholders to make way for new money to save it from liquidation by creditors.
A casualty of the prolonged downturn in oil prices, Seadrill filed for chapter 11 protection with more than $8 billion in funded debt, and another $3 billion in contingent debt.
The company intends to come out bankruptcy within a year, with its finances restored. With about $1 billion in cash already in its coffers, it is expected that chapter 11 financing would not be required for the firm to continue business as usual
At the end of 2016, the company had narrowed its net loss to $657 million in the three months to the end of September from a loss of $1.9 billion in the same period a year earlier, far off from the profit estimations made by analysts. Revenue dropped to $743 million from $985 million over the same period, mainly due to idle drilling rigs and lower day rates.
In that period, Seadrill cut 23% of its staff to 5,500 as oil prices remained in the $40-$50 range, a level that not sufficient to reverse the declines in its upstream spending. It was estimated that upstream spending would again decline in the 2017 period.
The company estimated that expects earnings before interest, taxes, depreciation and amortization would drop to around $340 million in the fourth quarter, from $441 million in the third quarter, as seven of its rigs would be idle for the next quarter, while two of its rigs would be paid lower rates.
Shortly after the chapter 11 bankruptcy protection for Seadrill, with a plan backed by nearly all lenders as well as holders of 40 percent of its bonds and major shareholder John Fredriksen, the Norwegian-born shipping billionaire.
Under the plan, holders of the company’s $2.3 billion in unsecured bonds would receive 14.3 percent of the stock in the reorganized company.
That plan was regarded as unacceptable to a group holding around 25 percent of Seadrill’s bonds. The group includes 38 investors from the United States, Europe and Asia, and funds managed by Nordic asset manager DnB Asset Management, Nine Masts Capital Ltd of Hong Kong, and U.S. hedge funds such as Phoenix Investment Adviser LLC.
Kris Hansen, a lawyer for Stroock & Stroock & Lavan, which was hired by this group of unsecured noteholders explained they all felt shut out of a process and were surprised at the treatment given to them and they were only in positions to recover very little compared to those sponsoring the plan, including the company’s largest stakeholder.
He outlined that the group simply sought to actively participate in this process to increase the recovery for disenfranchised holders, which they viewed themselves as.
Seadrill at the time, was in the process of soliciting proposals that would provide a market test of the Fredriksen-backed plan and the company said in recent court documents it had received two proposals from bondholders.
A hearing was called to seek approval for a Seadrill proposal to manage its cash across its global business. U.S. Bankruptcy Judge David Jones approved the request over an objection by the U.S. Trustee, a government bankruptcy watchdog.
Seadrill looks likely to recover from its current challenges, although it may be difficult to estimate the likely time frame. At current levels, the risk/reward looks to be worth a shot.
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Disclosure: We have no position in SDRL and have not been compensated for this article.