Seadrill turns to loss on US$1.8b writedown in oil rout

[OSLO] Seadrill, the offshore driller controlled by billionaire John Fredriksen, reported its first quarterly loss since 2011 as a collapse in oil prices reduced demand for its rigs.

The net loss of US$1.83 billion came after the Hamilton, Bermuda-based company booked US$1.8 billion in non-cash impairment charges to investments and goodwill, it said in a statement. Earnings before interest, taxes, depreciation and amortization fell 14 per cent to US$546 million from a year earlier, beating the US$506 million average estimate in a Bloomberg survey of 21 analysts.

"Market conditions are likely to remain challenging through 2016 and the coming quarters will provide insight into the 2017 environment," chief executive officer Per Wullf said in the statement. The writedown is "good housekeeping," and Seadrill's underlying business is "very sound and healthy," he said in a video on the company's website.

Seadrill rose as much as 2.5 per cent in Oslo and the shares were little changed at 53.45 kroner as of 10:01 am, bringing losses over the past 12 months to 63 per cent.

Seadrill and other offshore-rig owners such as Transocean and Ensco are suffering as oil companies cut investments after crude prices fell to about US$45 a barrel from a high of US$115 in June 2014. Demand is weakening at the same time as the market faces a glut of new vessels, prompting drillers to cut dividends, defer newbuild deliveries and renegotiate contracts to weather the downturn.

The company said US$1.1 billion of the impairment charge was related to its ownership in Seadrill Partners LLC and US$563 million came after a test on goodwill.

Seadrill continues to talk with shipyards and clients to postpone delivery of new units and amend contracts, it said in the report. In the meantime, new deals are being made at or below cash break-even levels in the ultra-deepwater floating rig market, the company said. Day rates for the most advanced rigs have fallen to about US$250,000 from highs of about US$650,000 in 2013, according to a Nov 12 Pareto Securities AS report.

Backlog Shrinks Seadrill's backlog dropped to US$12 billion from US$14 billion three months earlier. The company said it had won a three-year contract with Saudi Arabian Oil Co for a jack-up rig with a total revenue potential of US$136 million, it said.

Seadrill also said that Hyundai Samho Heavy Industries Co last month started arbitration proceedings to contest the driller's cancellation of the West Mira rig and its right to recoup US$170 million in pre-delivery installments.

The company expects Ebitda to be about US$30 million less in fourth quarter than in the third quarter, it said.

Seadrill, which says it has the world's most modern rig fleet, has stood by as rivals such as Transocean have scrapped more than 40 units since the end of last year. The market needs to see at least 60 more units exit permanently, Wullf said in the video.

"Then we are very well positioned with our new fleet when the upturn comes," he said.

BLOOMBERG