Investors appear to have taken it as a given that John Fredriksen, the billionaire founder and largest shareholder of Seadrill Ltd (NYSE:SDRL), will come up with sorely needed financial support to help tide over the cash crunch from imminent debt maturities.
Shares in Seadrill rose again Monday, after two down days, to close at $2.82, up 9.73%, on volume of 11.13 million.
Seadrill owes $9.1 billion, a debt that is bigger than any of its competitors.
Seadrill Ltd (NYSE:SDRL) bears on the back foot after OPEC and Bloomberg
Shares in Seadrill, which is an offshore drilling contractor, have been on an uptrend since September 28, when they touched a low of $1.86.
First out was the news of the OPEC output cut, and second, the Bloomberg report that Fredriksen was likely to chip in with as much as $1.2 billion in a financial restructuring of the debt-laden driller.
Both news items acted like bullish catalysts, and as a result the stock is now up by 79.62% over its 52-week low of $1.57.
Seadrill Ltd (NYSE:SDRL) gets a tailwind from rising oil prices
Also helping is the recent uptrend in oil prices, currently positioned above $50 a WTIC barrel. Higher oil prices translate into more exploration and drilling activity, all of which helps generate revenue (and therefore cash) at Seadrill.
Seadrill has a modern, high specification fleet that will be a huge asset if the offshore drilling market turns around.
Critical, therefore, is Seadrill’s ability to ride out the difficulties from the current downturn, and here, support from Fredriksen could make a big difference in the event Seadrill requires it.
However, Seadrill may also take recourse to an equity issue, and this would be dilutive to the shareholders, including Fredriksen.
According to the Bloomberg report, Seadrill Chief Executive Officer Per Wullf will have the company’s restructuring plan ready by beginning of December.
By that time, more clarity may also emerge on OPEC’s line of action on the promised output cut.
Wait-and-watch, therefore, may be a good idea for Seadrill’s investors.