Today's numbers are great Anytime an offshore driller can have 93% economic utilization for floaters and 98% for jack-ups, as Seadrill did in the first quarter, they're bound to have a good quarter. $492 million in cash generated from operations also helped reduce net interest bearing debt from $11.76 billion at the end of 2014 to $11.35 billion after the first quarter.
The rest of 2015 should be pretty good as well. The company has 85% of the available rig days in 2015 under contract, so it should be profitable throughout the year.
Tomorrow's numbers are up in the air Showing just how slow contracts are in offshore drilling today, Seadrill signed just one contract in the quarter, a one-year deal for a jack-up rig worth up to $35 million. That's a snail's pace, particularly when you consider that Seadrill Group's backlog fell from $17 billion to $15.5 billion in just one quarter.
To make matters worse, by the end of 2016 Seadrill has $1.3 billion in debt maturities and $3.5 billion in yard installments for newbuild rigs. That's a lot of cash to come up with just as earnings are expected to decline. So, if the offshore drilling market doesn't improve quickly Seadrill could drown under the weight of over $11 billion in debt, which is what bears are pointing to as the biggest risk for the stock.
Is there a light at the end of the tunnel? Ultimately, the question for Seadrill's investors is this: When will offshore drilling activity pick up again?
No matter how you slice it, 2015 will be slow. Drilling companies big and small slashed their capital budgets for 2015 because the price of Brent Crude Oil was $55 per barrel coming into the year and hit a multiyear low in the mid-$40s in January. But since then oil prices have improved, as you can see below, and onshore we're seeing the number of rotary rigs in service stabilize, indicating that drilling is continuing at some oil fields.
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