Drilling Down Into Seadrill Ltd (SDRL)’s First-Quarter Results

Seadrill Ltd (NYSE:SDRL) reported earnings last week. The contract driller recorded its best operating quarterly result ever and is primed for more as drilling picks up. Let’s drill down into the results and see what made this quarter so good.

Behind the numbers
Coming into the quarter, analysts were expecting revenue of $1.14 billion, Seadrill Ltd (NYSE:SDRL) beat that number and delivered $1.27 billion of revenue. That revenue generated operating profit of $552 million which was up from $441 million last quarter. Finally, net income came in at $440 million, or $0.87 per share, as Seadrill Ltd (NYSE:SDRL)’s high-margin business delivered excellent profits. There were a lot of moving parts this past quarter, so let’s take a quick look at how it affected the numbers.

Utilization was strong this quarter with floater utilization at 92%, up from 86% in the fourth quarter, while jack-up utilization was 99% in the quarter, up from 94% last quarter. The higher the utilization of Seadrill Ltd (NYSE:SDRL)’s fleet, the more money the company can make, so seeing improvements here is great. Overall, utilization was very strong this quarter which helped contribute to the excellent results.

In addition to utilization, the company made several adjustments to its fleet which contributed to the excellent results. In the quarter, Seadrill Ltd (NYSE:SDRL) completed the sale of its West Janus jack-up rig for $73 million. The company recorded a gain on that sale of $61 million in the quarter. This sale is of course a one-time item, but given how Seadrill Ltd (NYSE:SDRL) manages its portfolio, these sales happen a lot. Looking ahead, the company has already announced the completion of two sales after the quarter ended, which will impact next quarter’s results. One is a $2.9 billion sale of 18 tender rigs to SapuraKencana Petroleum and a $210 million drop-down transaction with Seadrill Partners LLC (NYSE:SDLP). Seadrill’s fleet is always on the move — assets are sold while new pieces are added to its portfolio all the time.

Speaking of which, the company ordered four jack-ups last quarter at the cost of about $230 million per rig; they will be delivered in 2015. The company also completed the $590 million purchase of Songa Eclipse which is an ultra-deep-water, semi-submersible rig. Finally, Seadrill secured a two-year extension for the West Leo which is also an ultra-deep-water, semi-submersible rig. The company estimates that there is a total revenue potential of about $430 million with that vessel.