Seadrill was unchanged in the market even on reporting better than expected third-quarter earnings, attributed to a decline in operating expenses. The offshore drilling contractor says it generated $743 million in revenue, representing a 25% decline from last year same quarter levels. Even with the decline, the company still beat Wall Street consensus estimates by $24 million.
Challenging Environment
The fall in revenue according to the company was as a result of six additional idle units in the quarter compared to last year. Even with the decline, Seadrill appears to be doing much better than other players in the industry are. Noble Corporation Ordinary Shares (UK)(NYSE:NE) recorded a steep decline in revenues from $894 million in the second quarter to lows of $385 million. Rowan Companies PLC(NYSE:RDC) posted a 37% decline in Q3 revenues compared to the second quarter.
Seadrill CEO, Per Wullf warning of a challenging environment going forward should be a point of concern given the 25% decline in revenue in the third quarter. Fuelling uncertainty in the industry is the fact that oil prices have struggled to rise above the $50 a mark, to fuel capital spending from energy companies The Company now expects spending to fall even further next year, which could spell more problems for the offshore drilling industry.
“Most of the new work is for short-term contracts at or near cash flow breakeven level, and 2017 is expected to remain challenging. However, we expect the market to gradually improve as costs have been reset across the value chain and more drilling activity will be needed to avoid accelerated production declines,” said Mr. Wullf.
Q4 Outlook
While Seadrill generates revenues from three main operating segments, the floater’s segment made up of semi-submersible rigs and drill ships continues to account for a good chunk of overall revenues. In the third quarter, the segment accounted for 71% of total revenues at $528 million, lower than $610 million posted in the previous quarter.
Uncertainty in the energy industry means Seadrill Ltd (NYSE:SDRL) could see its fourth quarter revenue tank even further, especially with the idling of seven rigs. The company could also pay the price for lower day rates on two other rigs.
