The current economic scenario is certainly not the best time for Seadrill Ltd (NYSE:SDRL). However, accounting the existing problems, the company has taken substantial measures to reduce its debt, which along with contract coverage will help it to deal with the tough times. There is shortage of good news in the offshore market, particularly for Seadrill. The demand for offshore drilling ventures is showing no sign of comeback while there is an oversupply of rigs. Also, the need to finance additional 14 ordered rigs have resulted in almost 85% decline in SDRL stock in last two years.
The analysis of current market conditions indicate that the market may take some more time to gain strength. Therefore, Seadrill decided to cut down on its debt so that it can survive market downturn without much pain. One of the biggest problems for the company was its balance sheet that looked horrendous compared to many of its competitors.
The company extended its debt during the recent construction frenzy environment. However, the market participants have failed to notice that Seadrill has actually retired some of its debt. Since the start of 2014, it has reduced its total liabilities by over 20% to approximately $14.6 billion. Due to this the company’s total debt-to-capital ratio stands at nearly 52%.
The problem continues
The reduction of debt may not completely address all of Seadrill’s debt problems. After all, there is nearly $3.5 billion amount linked to new rigs under construction. This amount stands even after the recent termination of West Mira drillship. The company is seeking an alternative to drop down rigs to MLP for cash is less attractive. Its debt stands at extreme and debt to capital ratio is 65%, which suggests issuing debt is not a feasible idea. It’s likely that company’s debt may rise again to support some of its commitments.