Seadrill Ltd (NYSE:SDRL) Fell Bitterly After Announcing Dividend Cut On Account Of Weak Oil Prices

Seadrill Ltd (NYSE:SDRL) announced dividend cuts as a potential measure to check debts and fund its recent acquisition plans.

Steepest Six-Year Fall

The company fell severely, recording the steepest fall in as many as six years as it announced the news. According to a Bloomberg article, the company fell as much as 19%, and this accounts for the steepest fall since November, 2008.

Have analyst identified a ongoing trend in SDRL? 

Seadrill Ltd (NYSE:SDRL) explained that the dividend cut was a consequence of weak oil prices, which have in turn weakened the demand for rigs. In this context, the Bermuda-based company’s Chairman, Fredriksen, said that the board of directors had a difficult time announcing the decision. However, given the gravity of the scenario, where it witnessed a deep plunge in the offshore drilling, as well as financing markets, it was left with no other alternative.

Weak Oil Prices

The recent oil prices are lower than $80 per barrel, which has raised concerns among oil companies. The low prices have caused revenues to fall significantly and have led most of them to take unforeseen steps. Some companies have suspended major projects after the slump.

Seadrill Ltd (NYSE:SDRL) seeks to be a consolidator as it discovers opportunities amidst the downturn. Post the Baker Hughes Incorporated (NYSE:BHI) and Halliburton Company (NYSE:HAL) merger, the oil industry is expecting further such tie-ups. The deal between these two parties was a merger that involved $34.6 billion. Apart from this, another recent event that hints at potential merger and acquisition opportunities is the Technip SA (OCTMKTS:TNHPF) bid. The bid in talks was raised for the France-based company, CGG SA (ADR) (NYSE:CGG) and was worth $1.83 billion.

The company expects that the decision of suspending its dividend for the quarter will help it improve its capital position. According to estimates, the company could improve by as much as $2 billion per year from this step. Fredriksen commented that the company will surge from this fall and will be in a position to improve distributions in the coming time.

About the Author

Coper graduated from the University of Chicagi with majors in political science and journalism.

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