A Deeper Look into Seadrill’s Backlog

Backlog

Seadrill (SDRL) has a backlog of $7.54 billion on its record, far less compared to $13.6 billion in the same period last year. The backlog stood at $8.9 billion at the end of 1Q15. A company’s backlog often indicates where future revenues of the company might be. It also tells us about a company’s exposure to spot and time-charter markets.

A Deeper Look into Seadrill’s Backlog

Backlog details

  • The total backlog for Seadrill’s floater segment is $6.02 billion, which is 184% of the company’s total floater revenue for the past four quarters. The backlog for Seadrill’s jack-up segment is $1.52 billion, which is just 99% of the company’s total jack-up revenue for the past four quarters.
  • The company has approximately $1 billion in backlog for the remaining half of the year, which is just 50% of the first half year of revenue for 2015.

Contracts

  • The average contract duration is 26 months for floaters and 15 months for jack-ups.
  • Seadrill signed a provisional commitment for a two-year extension with Pemex for the West Pegasus semi-submersible. Along with this, the company secured an extension of work until August 2016 for the West Phoenix semi-submersible.
  • It also secured an 18-month extension for the West Ariel jack-up. The company could extend these contracts in return for reduction in day rates. This has been a common scenario recently in the offshore drilling industry (OIH) (IYE).
  • The company stated that with these negotiations it could achieve an increase in backlog of around $300 million.
  • Though the offshore drilling industry is facing serious challenges among many offshore basins, Africa and the Middle East are still quite robust markets.
  • The company has many contracts in Saudi Arabia and Norway. These contracts have not been terminated or negotiated and have comparatively higher day rates.

Comparing backlog with peers

  • Seadrill’s total revenue backlog was 151% of its 2014 revenue.
  • For peer comparison, we have calculated the ratio as total backlog divided by total 2014 revenue of the company.
  • Atwood Oceanics (ATW) has one of the highest ratios at 593%, followed by Noble Corporation (NE) and Diamond Offshore (DO) having ratios 276% and 211%, respectively.
  • Other industry players Ensco (ESV) and Pacific Drillers (PACD) have backlog-to-revenue ratios of 174%, and 162%, respectively.