First Sanctions and Now Its Own Shareholders: Seadrill Ltd (SDRL) Just Can’t Get A Break

Shareholders of a subsidiary of Seadrill Ltd (NYSE:SDRL), a $3.51 billion offshore drilling contractor, have sued the company in light of a deal signed with the Russian state-owned oil firm Rosneft back in June 2014, which has been put on hold since the sanctions in August last year. The shareholders of the subsidiary North Atlantic Drilling contend that both the parent company and the subsidiary made false and misleading statements, downplaying the risks of the deal with Rosneft. The deal involved Rosneft gaining a 30% stake in NADL in exchange for cash and a total of 150 onshore rigs. In early trading hours Seadrill’s stock was down by more than 4%. The news was first reported in the Russian business daily Kommersant on Friday.

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Seadrill Ltd (NYSE:SDRL) has lately been in a tough shape with the stock dropping by more than 37% so far this year. The stock has received some uplift recently on the back of the second quarter results, which managed to beat the earnings estimates and revenues that were almost in line with the expectations. The company has embarked on a rigorous cost cutting program and cost savings for the current year are expected to be double compared to the last year. Seadrill Ltd (NYSE:SDRL)’s management expects the low oil price environment to persist throughout 2016 with a real possibility of continuation in 2017 as well.

As Seadrill is undergoing some tough times dictated by low commodity prices, hedge funds have been cautious around the company, as our records show. We assess hedge fund sentiment that surrounds a stock based on 13F filings of more than 700 institutional investors, which we also use to determine the top 15 small-cap stocks in which they are invested.

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Generally hedge funds are holding their ground as far as Seadrill Ltd (NYSE:SDRL) is concerned. Among over 700 hedge funds that we track, 18 had an aggregate investment of $95.49 million in the company at the end June as compared to 18 funds with $121.10 million a quarter earlier. Among these investors, Jim Simons‘ renowned quant fund Renaissance Technologies heads the list holding some 2.74 million shares, after a 70% hike during the second trimester. Other prominent shareholders of Seadrill Ltd (NYSE:SDRL) include Luminus Management, led by Jonathan Barrett and Paul Segal, and Philippe Laffont’s Coatue Management, which own 1.38 million shares and 972,900 shares as of the end of June, respectively.

A number of investors were also bearish on the company during the quarter, including Ken Griffin’s Citadel Investment Group that reduced its stake in the company by 82% to about 651,100 shares.

With a pending lawsuit that the company has every intention of fighting, but is still to quantify its costs, a struggling oil market and ofcourse the frozen deal with Rosneft itself, are strong bearish signals for any investor to jump in on Seadrill Ltd (NYSE:SDRL)’s wagon at the moment. And smart money that are long Seadril are right to be taking their time with the company awaiting some developments that could indicate which direction to take.

Disclosure: None