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Where Seadrill Sees Its Earnings in 4Q16

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Seadrill’s earnings

In 3Q16, Seadrill’s (SDRL) EBITDA (earnings before interest, tax, depreciation, and amortization) fell to $441 million, compared to $557 million in 2Q16 and $546 million in 3Q15.

Seadrill’s 3Q16 EBITDA was higher than its guidance of $380 million, which it provided in its 2Q16 earnings. Generally, the company always surpasses its EBITDA guidance.

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What impacted Seadrill’s EBITDA?

Seadrill’s change in EBITDA compared to 2Q16 had many positive and negative catalysts. However, the negative catalysts outweighed the positives.

  • volume – a positive catalyst, as the quarter benefited from full-quarter operations of the West Eclipse and the start of operations on the West Vigilant
  • day rates – day rates on four rigs were reduced
  • utilization – the utilization rate was reduced
  • costs – costs fell due to improved operational expenditure and lower stacking costs
  • idle units: five rigs became idle in 3Q16, proving negative for EBITDA

Seadrill’s EBITDA margin fell from 64% in 2Q16 to 59% in 3Q16.

Peer performances

In 3Q16, Diamond Offshore (DO) recorded EBITDA of $140 million, a fall from the $156 million it recorded in the previous quarter. Ensco’s (ESV) 3Q16 EBITDA was $228 million, 30% lower than $327 million in 2Q16.

Rowan Companies’ (RDC) 3Q16 EBITDA fell to $168 million compared to $256 million in 2Q16. In 3Q16, Pacific Drilling (PACD) recorded EBITDA of $98.1 million, down from the $109 million it recorded in 2Q16.

EBITDA guidance for 4Q16

With many contracts rolling off in 4Q16 and the impact of lower day rates, Seadrill expects a huge fall in its 3Q15 EBITDA. Its EBITDA is expected to fall $101 million to $340 million in 4Q16, a fall of 23%.

The company’s lower EBITDA guidance is based on seven rigs—West Orion, West Alpha, West Hercules, Seven Driller, West Phoenix, West Pegasus, West Pegasus, and West Epsilon—having full-quarter idle times in 4Q16. The company will also have lower day rates on two other rigs, West Jupiter and AOD III. These factors will be partially offset by the start of operations for West Castor in December.

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