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Seadrill’s 2Q17 Costs Up and EBITDA Down

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Seadrill’s vessel operating expenses

As the chart below shows, Seadrill’s (SDRL) vessel operating expenses fell $22 million from $243 million in 2Q16 to $226 million in 2Q17. The second quarter expenses are, however, higher than the previous quarter’s $211 million.

The company’s costs have fallen along with its revenue. However, the fall in revenue was steeper than the fall in revenue. Due to this, Seadrill’s expense-to-revenue ratio has risen from 29% in 2Q16 to 39% in 2Q17. It’s also higher from the previous quarter’s 37%.

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G&A expenses

In 2Q17, Seadrill’s G&A (general and administrative) expenses rose to $88 million, or $27 million higher than the $61 million it reported for the previous quarter. G&A rose from its $54 million in 2Q16. The increase in costs is related to restructuring costs.

The company projects its G&A costs for 2017 to be ~$220 million, down from the $234 million it saw in 2016 and the $248 million it reported for 2015.

Seadrill’s EBITDA

In 2Q17, Seadrill’s (SDRL) EBITDA (earnings before interest, tax, depreciation, and amortization) fell to $264 million as compared to $291 million in 1Q17 and $557 million in 2Q16. Seadrill’s 2Q17 EBITDA was higher than its guidance of $240 million. The 9% fall in EBITDA reflects more idle units and increased costs.

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EBITDA guidance for 2Q17

With many contracts rolling off in 3Q17 and the impact of lower day rates, Seadrill expects another fall in its 3Q17 EBITDA. Its EBITDA is expected to drop to $175 million in 3Q17, a fall of 34%.

Peers

In the second quarter of 2017, Transocean’s (RIG) EBITDA was 2.5% lower than in the previous quarter. Similarly, Noble’s (NE) and Ensco’s (ESV) 2Q17 EBITDA was 49% and 11% lower, respectively. On the other hand, Diamond Offshore’s (DO) 2Q17 EBITDA was 23% higher quarter-over-quarter.

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