Seadrill Ltd (NYSE:SDRL), an offshore drilling services firm, has suffered massively during the oil market slump that commenced in 2014. The firm’s most concerning issue is its outstanding debt, out of which $2.4 billion has to be paid before June 2017. Comparatively, it has $1.3 billion in cash to service its liabilities, which stands at more than $4.3 billion including debt due.
Fortunately, the firm has recently obtained a boost as there was news that its largest shareholder can lend the firm $1.2 billion. Following the news, the firm’s shares have recorded impressive gains. For now, the stock is hovering around $2.35 with market cap of nearly $1.21 billion. The current portion of debt for long-term is $2.4 billion. Its cash on hand is $1.3 billion with total current liabilities standing at $4.3 billion.
John Fredriksen, Seadrill’s largest shareholder is rumored to be keen to lend the driller amount of $1.2 billion as part of an agreement with the bondholders and bank to restructure the debt load. Of course, this unexpected injection of capital will add to the firm’s short term finances. Still the concern is whether this injection of capital is enough to pay off the outstanding liabilities. Current assets stand at $1.29 billion compared to current liabilities of $2.35 billion current due debt. Total receivables are $1.2 billion with other current liabilities standing at $1.7 billion and other current assets at $400 million. Total current assets were $3 billion while total current liabilities amounted to $4.3 billion.
As it is evident, there is almost a shortfall of a ~$1.3 billion that had to be financed within next 8 months. However, the firm is not projected to breakeven operationally for the coming eight months with even more contracts expiring. Broadly, offshore drillers require nearly $65 Brent to see considerable shrinking demand from oil producers because offshore drilling improves later in the cycle compared to other oil producers. But, the economics backing oil is not ready to disrupt through to that level. Most analysts predict oil to move close to $55, due to incoming share supply and weak demand.