Sead­rill deep­ens cost cuts to ride out CEO’s worst rig slump

The Pak Banker - - BUSINESS -

LON­DON: Sead­rill Ltd., once the crown jewel among bil­lion­aire John Fredrik­sen's oil and ship­ping hold­ings, is deep­en­ing planned cost re­duc­tions this year as it at­tempts to make it through the worst mar­ket slump its chief ex­ec­u­tive has ever seen. Sav­ings will ex­ceed the $200 mil­lion tar­get an­nounced in Novem­ber, adding to the more than $600 mil­lion in cost cuts put in place in 2015, CEO Per Wullf said in a phone in­ter­view from Lon­don. Al­most 80 per­cent of the 2016 cuts are sus­tain­able, he said.

The re­duc­tions are part of a multi-front strug­gle for Sead­rill as it fights to stay afloat amid a plunge in oil prices over the past 18 months. Crude pro­duc­ers are cut­ting spend­ing, col­laps­ing de­mand for drilling at the same time as a glut of new rigs in­flated sup­ply. For Sead­rill, which has de­layed the de­liv­ery of new rigs, rene­go­ti­ated con­tracts and stopped pay­ing div­i­dends, the ur­gency of a fail­ing mar­ket is ac­cen­tu­ated by a debt bur­den that ex­ceeds by far that of any ri­val, ac­cord­ing to Nordea Bank AB. "We're likely to be at the end of 2017 be­fore this starts be­ing fun again," Wullf said of the mar­ket for float­ing rigs, where rates are now close to cost break-even for shorter con­tract ex­ten­sions. "I haven't seen it in this way be­fore, and I don't think I'm the only one who has been sur­prised at the down­turn." As an il­lus­tra­tion of the rapid mar­ket de­te­ri­o­ra­tion, Wullf, who has worked in the in­dus­try for more than 30 years, said he would ac­cept a day rate of $300,000 for an idle float­ing rig on a con­tract for 12 months or more, com­pared with the $350,000 to $400,000 he was seek­ing a lit­tle more than three months ago. Rates peaked at as much as $650,000 in 2013, prompt­ing a surge in the build­ing of new rigs. On very short-term deals, Sead­rill could go as low as $160,000 if it helps the com­pany keep a rig in op­er­a­tion be­tween other con­tracts, he said. The com­pany, which has a $1 bil­lion bond due in Septem­ber 2017, has a fund­ing gap of at least $2.5 bil­lion through 2018, ac­cord­ing to Nordea an­a­lyst Janne Kvern­land. The com­pany is likely to raise about $1 bil­lion in new equity as it re­struc­tures its fi­nanc­ing, she said in a note this week. Sead­rill's man­age­ment and board, led by Chair­man Fredrik­sen, have started a process that will in­volve banks, bond­hold­ers and share­hold­ers, Wullf said. The CEO meets with Fredrik­sen, who owns about 24 per­cent of the com­pany, on a weekly ba­sis to dis­cuss th­ese mat­ters.

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