Seadrill profit warning

Seadrill

West Aquarius - Source: Seadrill

Seadrill, one of the world’s biggest offshore drilling rig contractors, has warned of charges of $810m to its fourth quarter results for various reasons, with the biggest item a $615m charge for falls in the value of its “strategic investments” in three other companies: Pride International Inc, Scorpion Offshore Limited and SapuraCrest Bhd.

Alf C Thorkildsen, CEO of Seadrill Management, says it has been an important part of the company’s history to take large stakes in other offshore drilling contractors “where attractive future value potential has been identified.” He adds that Seadrill “continues to see the investments in Pride, Scorpion and SapuraCrest as attractive long-term investments.” He goes on: “All three companies trade today at a large discount to the real value of the underlying assets [and] have strong cash-flows and good compositions of assets which match Seadrill’s strategic growth ambitions. The Board is hopeful that Seadrill through long-term holding of these positions can recover the recorded losses and over time also make these investments into profitable growth for Seadrill.”

Analysts at Citigroup are not so sure. In a note this morning, they write

We expect this news will be taken negatively by the market, as the losses relate to financial instruments, some of which lack visibility, and not the underlying operations of a drilling company. We expect the company will need to be more transparent with the market regarding its strategy regarding drilling asset stakes…”

Seadrill shares are down 5 per cent at about 2.25pm in Oslo. They are down 63 per cent in the past six months.

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