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