Seadrill Takes a Financial Hit from Contractor Investments



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.
 


RELATED COMPANIES
Company: Smedvig ASA more info
 - Seadrill Takes a Financial Hit from Contractor Investments (Feb 23)
 - Endeavour Enters $40 Million Strategic Investment with Smedvig (Dec 26)
 - Smedvig is History, from Today It's Seadrill (Jun 01)
Company: Odfjell more info
Manages 20 Offshore Rigs
 - Odfjell Secures New Well Services Contracts (Sep 10)
 - Odfjell Offshore Raising up to $500M to Develop Fleet (Mar 12)
 - Odfjell Lands Record Breaking Deal with BP (Jan 11)
Company: Pride International more info
 - Randy Stilley Comes on Board of Paragon Offshore (Feb 04)
 - Ensco Completes Pride Acquisition (May 31)
 - Pride, Ensco Enter MOU in Merger Lawsuit (May 20)
Company: Ocean Rig more info
Manages 14 Offshore Rigs
 - Avenue Capital Urges Ocean Rig To Hire Advisers (Oct 17)
 - Rig Contractor Ocean RIG Files For Bankruptcy Protection In US (Mar 28)
 - Ocean Rig Acquires an Ultra Deepwater Drillship for $65M (Apr 27)
Company: PT Apexindo more info
Manages 8 Offshore Rigs
 - Apexindo's Raisis Rig Achieves 4 Years Without Lost Time Accident (Apr 03)
 - Seadrill Takes a Financial Hit from Contractor Investments (Feb 23)
 - Apexindo's Rani Woro Jackup Records Significant Safety Performance (Feb 10)
Company: SapuraCrest more info
 - Cargotec Clinches Order for 20 Winches (Apr 10)
 - Seadrill Studying Brazilian Expansion Plans (Dec 14)
 - Clough to Sell Offshore Marine Business (Aug 08)
Company: Seadrill Ltd more info
 - Norway's Seadrill Gets Two Rival Debt Restructuring Proposals (Oct 23)
 - Seadrill's Debt Overhaul Faces Creditor Scrutiny (Oct 02)
 - Seadrill Files for Bankruptcy in Bid to Shrink Debt Burden (Sep 13)
Company: Scorpion Offshore more info
 - Seadrill's Mandatory Offer to Purchase All Scorpion Shares (Jul 15)
 - Seadrill Increases Ownership in Scorpion Offshore (May 31)
 - UPDATE: Ensco Ends Partial Offer for Scorpion Offshore (May 28)
Company: Aker Drilling more info
 - Transocean Finalizes Acquisition of Aker Drilling (Oct 04)
 - Transocean to Buy Aker Drilling for $1.4B (Aug 15)
 - Vantage to Provide Construction Management Services for Aker Drillships (Mar 10)
Company: Mosvold Drilling more info
 - Seadrill Takes a Financial Hit from Contractor Investments (Feb 23)
 - First Jackup Rigs to be Built in the UAE to be Classed by ABS (Jul 13)
 - Smedvig to Supervise Construction of SeaDrill Newbuild Units (Feb 23)