In Seadrill's third quarter 2008 report it was informed that based on market prices for Pride International Inc, Scorpion Offshore Limited and SapuraCrest Bhd at the time of reporting (November 21, 2008) losses of US $687 million had been identified related to these strategic investments. The losses were at the time not charged to the Income Statement. However, approximately US $80 million was recorded against equity (other comprehensive income) at September 30, 2008.
At December 31, 2008, Seadrill's ownership positions in Pride, Scorpion and SapuraCrest were unchanged from what was reported in the third quarter 2008 report. The share prices improved somewhat from the reporting date for the third quarter results to December 31, but were still significantly lower than when the positions were acquired. Seadrill has therefore in accordance with prevailing US general accepted accounting principles decided to write down the value of these financial assets at year-end 2008 and charge US $615 million to the fourth quarter 2008 Income Statement.
In addition, and with reference to the notification dated November 13, 2008, Seadrill will in the fourth quarter 2008 Income Statement also recognize a loss of US $35 million related to Total Return Swap agreements in own treasury shares.
Furthermore, Seadrill has during the second half of 2008 entered into several interest swap agreements in order to lock in favorable long-term interest rates. These agreements are market-to-market and due to lower US dollar interest rates at year-end 2008 a charge of approximately US $160 million will be made to the Income Statement in the fourth quarter results.
The loss related to the interest rate swaps reflects lower long-tem interest rates which are fundamentally positive for the Company. Seadrill had as of December 31, 2008 approximately US $7.1 billion in interest bearing debt outstanding. Out of this approximately 55 percent has fixed long-term interest rate.
Alf C Thorkildsen, CEO of Seadrill Management AS, commented, "An important part in Seadrill corporate history has been to grow the Company through taking large investment positions in other offshore drilling contractors where attractive future value potential has been identified. Seadrill has through such strategy acquired companies like Smedvig asa, Mosvold Offshore Limited, Odfjell Invest Limited and Eastern Drilling ASA. In addition, Seadrill has realized profits from buying and later selling stakes in Ocean Rig ASA, PT Apexindo Pratma Duta Tbk and Aker Drilling ASA.
"Seadrill continues to see the investments in Pride, Scorpion and SapuraCrest as attractive long-term investments. All three companies trade today at a large discount to the real value of the underlying assets. The companies have strong cash-flows and good compositions of assets which match Seadrill's strategic growth ambitions. The Board is hopeful that Seadrill through long-term holding of these positions can recover the recorded losses and over time also make these investments into profitable growth for Seadrill."
The above will be further detailed in the forthcoming fourth quarter 2008 report which will be released February 26.