3 Things to Watch When Seadrill Releases Earnings

Photo credit: Seadrill

Seadrill Ltd (NYSE: SDRL)

• Analysts expect earnings of $0.68 per share and $1.41 billion in revenue.

First quarter results scheduled for May 28th before markets open.

Photo credit: Seadrill

Industry review

• Industry peers Ensco and Transocean already reported first quarter earnings. • Ensco reported earnings of $1.31 per share,

which was 8.26% higher than analysts were expecting.

• Meanwhile, Transocean reported earnings of $1.43 per share, which was 43% higher than analysts’ estimates.

• Both beats bode well for Seadrill.

First area to watch at Seadrill

• Can it beat the street too?• Consensus estimate is for earnings of $0.68 per

share.• However, Seadrill has missed estimates the past

two quarters, with last quarter’s miss by 37%.• Missing estimates again could signal that its

position isn’t as strong as it thought.

Second area to watch at Seadrill

• What was its utilization rate?• Last quarter the utilization rate for Seadrill’s

floater fleet was 94% while utilization of the jack-up fleet was 98%.

• We want to see Seadrill at least maintain, if not improve, those utilization rates.

• That’s a tall order given the current storm in the offshore rig market.

Second area to watch at Seadrill

• What was its utilization rate? (cont.)• Last quarter Ensco saw its utilization rate slip to

78% from 86% in the first quarter of 2013. • However, Transocean’s utilization rate improved

to 78% from 75% in the prior quarter. • Bottom line, we want to see Seadrill’s utilization

rate rise, especially in its jack-up fleet which had 20% of its 2014 capacity uncontracted as of the end of last quarter.

Second area to watch at Seadrill

• What was its utilization rate? (cont.)• Last quarter Ensco saw its utilization rate slip to

78% from 86% in the first quarter of 2013. • However, Transocean’s utilization rate improved

to 78% from 75% in the prior quarter. • Bottom line, we want to see Seadrill’s utilization

rate rise, especially in its jack-up fleet which had 20% of its 2014 capacity uncontracted as of the end of last quarter.

Third area to watch at Seadrill

• Is the backlog still growing?• Seadrill noted that subsequent to the end of the

first quarter that its order backlog is currently at $20.2 billion.

• However, the company was in discussions on the Saturn and Jupiter which are scheduled to be delivered later this year.

• Ideally, we want to see both drillships under contract.

Third area to watch at Seadrill

• Is the backlog still growing? (cont.)• In addition to those two

contracts we’d hope the company is able to announce that it has secured new contracts or renewals for more of its currently uncontracted fleet for this year and next.

What not to expect

• Don’t expect to see the dividend raised this quarter• Seadrill made it pretty clear that its fourth quarter

dividend increase was its last for the time being. • Future dividend increase will be determined by

contract coverage, market outlook, leverage capacity and future earnings.

• Therefore, we want to see all of these areas improving this quarter.

Bottom line

• Seadrill’s quarter might not be the washout investors had been fearing.

• Both Ensco and Transocean had better quarters than expected, which suggests the market might not fall as far as feared.

• If Seadrill can beat estimates, improve its utilization rate and increase its contract backlog then its stock should see a nice boost.

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