Underwater Drillers – Best Investment Outlook

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Turning our attention to SeaDrill Limited (NYSE:SDRL), a number of 18 hedge funds observed by our team held stakes in the company at the end of the most recent quarter, while the value of these stakes added up to $95.49 million. Seemingly, SeaDrill is in a much worse position than its industry peers, with its shares losing 42% year-to-date. But it is not the stock performance that describes the difficult situation the company is in. SeaDrill’s balance sheet is very weak, as the company used a huge amount of debt to finance its operations. With the falling revenue generated by the company, its accumulated debt of approximately $13 billion is not that sustainable. Even more to that, SeaDrill is currently facing the dilemma of how to pay for its new rigs that are scheduled for delivery through 2017. It is worth mentioning that the company suspended its dividend payments last year in order to combat the relatively low price level of oil. Despite the hazy outlook of the underwater drilling industry, Jim Simons’ Renaissance Technologies increased its stake in SeaDrill during the second quarter to 2.74 million shares.

Lastly, we will take a look at Noble Corporation plc (NYSE:NE), which has seen its stock lose almost 29% since the beginning of the year. The number of hedge funds with long positions in the company increased to 37 from 30 during the latest quarter, whereas the value of these positions decreased to $1.93 billion from $2.37 billion. Credit Suisse recently lowered the price target on Noble to $16 from $18, but maintained an “Outperform” rating. The investment bank suggested that the company has a good portfolio of assets and a good backlog, but may be challenged with a few company-specific risks, including declining ultra-deepwater (UDW) day rates, reducing customer base, accidents, and oil prices and strengthening competition. It is worth noting that Credit Suisse believes that the underwater drilling sector will recover starting from 2018, so only time will show which of the three companies is better positioned to outperform when the oil industry recovers. Steven Cohen’s Point72 Asset Management added a 3.87 million-share position in Noble Corporation plc (NYSE:NE) to its portfolio during the quarter.

Disclosure: None

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