Seadrill Deepens Cost Cuts to Ride Out CEO’s Worst Rig Slump

(Bloomberg) -- Seadrill Ltd., once the crown jewel among billionaire John Fredriksen’s oil and shipping holdings, is deepening planned cost reductions this year as it attempts to make it through the worst market slump its chief executive has ever seen.

Savings will exceed the $200 million target announced in November, adding to the more than $600 million in cost cuts put in place in 2015, CEO Per Wullf said in a phone interview from London. Almost 80 percent of the 2016 cuts are sustainable, he said.

The reductions are part of a multi-front struggle for Seadrill as it fights to stay afloat amid a plunge in oil prices over the past 18 months. Crude producers are cutting spending, collapsing demand for drilling at the same time as a glut of new rigs inflated supply.

For Seadrill, which has delayed the delivery of new rigs, renegotiated contracts and stopped paying dividends, the urgency of a failing market is accentuated by a debt burden that exceeds by far that of any rival, according to Nordea Bank AB.

“We’re likely to be at the end of 2017 before this starts being fun again,” Wullf said of the market for floating rigs, where rates are now close to cost break-even for shorter contract extensions. “I haven’t seen it in this way before, and I don’t think I’m the only one who has been surprised at the downturn.”

Seadrill fell 5.5 percent to 17.4 kroner in Oslo on Monday. That extends losses to 43 percent this year, while 93 percent of the company’s value has been erased since a July 2014 high. Brent crude traded at about $34.7 a barrel in London, 70 percent lower than in June 2014.

Sinking Rates

As an illustration of the rapid market deterioration, Wullf, who has worked in the industry for more than 30 years, said he would accept a day rate of $300,000 for an idle floating rig on a contract for 12 months or more, compared with the $350,000 to $400,000 he was seeking a little more than three months ago. Rates peaked at as much as $650,000 in 2013, prompting a surge in the building of new rigs.


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