The Corporate Restructuring Report-Seadrill Limited (SDRL)
On July 2nd, 2018, Seadrill (NYSE:SDRL) emerged from Chapter 11 bankruptcy restructuring. SDRL had filed for bankruptcy restructuring on September 12th, 2017. In connection with the Plan, secured debt holders received ~78.4% of the reorganized stock, unsecured debt holders received ~14.25%, other investors received ~5.5% and existing shareholders received ~1.9% in the new reorganized company. The plan equitized more than ~$3.5 billion in debt and facilitated injection of ~$1.08 billion in liquidity.
We see SDRL as a play on the offshore drilling market, which is showing signs of early recovery. Constructive commodity prices (Brent crude oil above $60/bbl for more than 6 months now), improving utiliziation (global jack-up market utilization at ~74%), and rig retirements (~9% of global floater fleet and~19% of jackups expected to retire) all bode well for the industry. The M&A activity is picking up in the sector, which should support the recovery. However the recovery is likely to be slow and the supply-demand rebalancing is unlikely in the near term. A large supply of rigs continues to persist and will remain a headwind in the near-term. While the jack-up market is showing visible signs of improvement, the floater market remains more subdued. Improvements in day rates are not anticipated until 2019 and beyond.
Despite near term challenges, we remain optimistic over the medium to long term. Offshore is a significant portion of oil companies' reserves and will remain a critical source of future supply. SDRL is well positioned to benefit from the eventual industry recovery. In our view, SDRL is undervalued at current levels.
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