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Why Seadrill Stock Skyrocketed

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High volume game

Seadrill (SDRL) stock has skyrocketed. On May 17, the stock rose 26.1% and reached $0.58. The company’s volume increased to 69.3 million shares—the third most actively traded stock on major US exchanges. The company’s last three-month trading volume was 5.2 million.

Bankruptcy
Seadrill has one of the highest winning streaks in the last three days. The stock has risen 81% in last three trading days.

In the past year, Seadrill shares have traded in a range of $0.15–$0.74. The share price has gained 286% from its 52-week low. Seadrill’s shares have gained more than 150% this year. During the same period, Transocean (RIG) has risen 28.3%, Rowan Companies (RDC) has risen 6.9%, and Ensco (ESV) has risen 19.6% as of May 17. The Dow Jones Industrial Average (DIA) and the SPDR S&P 500 ETF (SPY) have risen 2% and 0.13%, respectively.

With such an enormous rise in Seadrill’s stock price, are any fundamentals attached to this rise? The answer is “no.” The momentum traders are playing a big role behind the stock’s recent volatility.

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Restructuring

Seadrill filed for Chapter 11 bankruptcy protection in September last year. In April, the court confirmed Seadrill’s restructuring plans. The current shareholders get a 1.9% post-dilution stake. The company is expected to emerge from Chapter 11 in ~40–60 days. Seadrill’s financial advisor valued the post-restructuring equity in the range of $3.2 billion–$4.7 billion. As a result, the post re-structuring shares are worth $0.12–$0.18.

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