Mixed News for Seadrill Ltd (NYSE:SDRL), Stock Powers Up Nevertheless


Reports that OPEC had reached an agreement, the first after 2008, to curtail crude production lit a fire under energy stocks.

Seadrill Ltd (NYSE:SDRL) closed at $2.31, up 19.69%, on volume of 18.62 million shares.

Seadrill is a London-headquartered offshore drilling contractor operating a fleet of 68 rigs.

The stock was buffeted by a mix of positive and negative news but closed solidly higher due to the OPEC story.

Seadrill Ltd (NYSE:SDRL) to benefit from higher oil prices

OPEC’s decision at Algiers , if it is actually implemented, is bullish for Seadrill because higher oil prices mean oil exploration companies will find it economical to conduct exploration drilling. If that happens there would be more demand for the company’s drilling rigs.

According to media reports, OPEC oil production is expected to be reduced to a range of 32.5 to 33 million barrels of oil per day from 33.4 million.

Oil prices have jumped over 5% on news of the OPEC decision.

Detailed production quotas are expected to be assigned in the next OPEC meeting in November. Non-OPEC countries such as Russia may also be invited to cut their production.

Seadrill Ltd (NYSE:SDRL)’s majority owned North American Drilling loses drilling contract

On the flip side of the news affecting Seadrill, Statoil ASA(ADR) (NYSE:STO) reportedly cancelled its contract for North American’s West Epsilon jack-up rig two months before expiration.  Though Statoil will pay compensation of $ 11 million, the cancellation reflects the grim conditions prevailing in the oil industry.

Seadrill owns 70% of North American Drilling.

Seadrill’s balance sheet is overburdened by debt and servicing that debt will become all the more difficult if drilling rigs come off contract and cannot be deployed elsewhere, choking off much needed revenue.

That explains why the stock did not respond to the recent rally in oil prices.


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