By Kjetil Malkenes Hovland
OSLO--Oslo-listed Seadrill Ltd. said Wednesday that it was
suspending dividend payments to cut debt and to help finance
possible acquisitions amid expectations that oil field services
companies will consolidate as they battle fallout from weak oil
prices.
"The decision to suspend the dividend has been a difficult
decision for the board," said Seadrill Chairman John Fredriksen,
but he said it was the right way to deal with a "significant
deterioration in the broader offshore drilling and financing
markets over the past quarter."
Seadrill said it aimed "to act as a consolidator as
opportunities become available during this downturn." Mergers have
been expected in the oil-services sector following a $34.6 billion
tie-up between Halliburton Co. and Baker Hughes Inc. in the U.S.
and a $1.83 billion bid by Technip SA for fellow French company CGG
SA.
Oil prices have slipped to below $80 dollars a barrel, crimping
revenue earned by major oil companies and prompting them to cut
back on the projects oil services companies depend on.
On Wednesday Brent crude for January delivery was up 50 cents at
$78.81 a barrel on ICE Futures Europe.
"Opportunities to buy distressed assets could probably surface
at some point. By cutting dividends, Seadrill is better positioned
to capitalize on this," said Sparebank Markets analyst Robert Andre
Jensen. However, "it's hard to see many attractive distressed
assets in the short term. We need to endure a longer period of
weakness for this to happen."
Seadrill may have the best fleet and contract coverage among the
larger oil drillers, but it still has a lot of debt and nearly $6
billion of newbuilds to pay for, Mr. Jensen said. To help secure
future financing, Seadrill would have to show banks and creditors
commitment, Mr. Jensen said. He forecasts the cyclical downturn in
the rig market to continue at least into 2017.
By suspending its dividend, Seadrill expects its capital
position to improve by $2 billion a year. The board has authorized
a share buyback program of up to 10% of outstanding shares over the
coming year.
"I am confident that Seadrill will emerge from this downturn
even stronger and that we will resume our distributions in the
future," Mr. Fredriksen said.
Seadrill's third-quarter net profit fell to $149 million, or
$0.31 a share, from $286 million in the same period last year.
It didn't address the possible impact on its business from
sanctions against Russia, which may affect $4.1 billion worth of
rig contracts between its subsidiary North Atlantic Drilling and
Russia's Rosneft. Its earnings report said only that there were
"uncertainties" over the timing of drilling, which is set to begin
between 2015 and 2017.
"Seadrill still reports the $4 billion associated with the
Rosneft deal in its backlog, but the lights are starting to go out
for a startup of drilling in 2015, as the Russian Arctic region is
not a year-round market," said Mr. Jensen. He said Russia will be a
potentially tough market for offshore drillers in coming years,
"but it's increasingly difficult to see short-term upside from
this, given the ongoing sanctions," he said.
Seadrill's shares were down 10% by midafternoon Wednesday.
Write to Kjetil Malkenes Hovland at
kjetilmalkenes.hovland@wsj.com
Access Investor Kit for Seadrill Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=BMG7945E1057
Access Investor Kit for Technip SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=FR0000131708
Access Investor Kit for Rosneft
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=RU000A0J2Q06
Access Investor Kit for Halliburton Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US4062161017
Access Investor Kit for Technip SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8785462099
Subscribe to WSJ: http://online.wsj.com?mod=djnwires