Seadrill Ltd Executive Insights: Financing Package, Pricing Power

On Monday, Seadrill Ltd (NYSE:SDRL) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Financing Package

Peter Testa – One Investment: Two questions, please. I was wondering, if you could help, in the release you talk about the backlog having a 60% margin and if you look at the mix as it heads towards ultra-deepwater, makes perfect sense that that would be what comes out, but given your views on the market and market potential, do you regard that as a floor or do you regard that as something which is something you should be beating going forward looking at the terms you’re talking about on the four vessels for example? Second question, please, was on the financing package. You talked about being in a process, are you looking therefore at a multiple bank syndicate revolver type facility and maybe if you could tell us where you think you would be in the process and beyond that how you think such a process might also segue into the MLP structure?

Alf C Thorkildsen – President and CEO: Let me try to answer on your $10 million question, as to how the market looks like? I wouldn’t say it’s a floor or it’s a ceiling. What we’re seeing is in what we believe is we are into an improving market. Sometimes there are very short-term spikes. We do however believe that what we have seen lately which is kind of from the beginning of ’12 and ’11, we see that also continuing into ’13. It’s hard to judge that much further, but we see that there was balanced supply demand picture over the next 24 months and we had been able to keep close to 60% EBITDA margin when you play the cycle and the last very good cycle was in 2007, coming into beginning of 2008 and we had the same margin at that time, then it fell over the next year and we know we are back to pretty close to the same top margin and we are seeing it this time. Maybe lasting for a longer period mainly due to the effectives fines relatively modest newbuild activity and very good oil and gas prices globally. That is what is driving this demand and we believe that we are in the middle of it and I would just now comment directly if it’s the flow of the ceiling, we feel that we are in an improving margin as such. Then you had a second question on financing package and Rune Magnus you try to answer some of that I guess.

Rune Magnus Lundetrae – SVP and CFO: As Alf referred to in his comments today, we have a total CapEx program of some $6.9 billion of which we have paid $1.3 billion, that leaves us with approximately $5.6 billion commitment. The key for us is the flexibility and the way we see it right now, we have several options open to us. We are looking into the unsecured bond markets, we’re looking at ECI financing with 7 of the 18 rigs coming out of Korea. We also have Hendrick facility that matures this summer and we’re looking at a secured financing there. I can go on and mention secured bond and also convertible bond market, but as I said, we see several options open to us and we try to keep our options open at this stage. Not really relevant to the MLP discussion for today so we keep that separate for now.

Peter Testa – One Investment: So the question, key structure versus how you think financing structures could segue in, I mean secured funding tends to be a little harder to move for example related to unsecured bond, so just wondering whether your structures when you mentioned flexibility being key also reflected that point?

Rune Magnus Lundetrae – SVP and CFO: Related to the MLP u mean?

Peter Testa – One Investment: Yes, in terms disruption you put in today allowing you flexibility to move assets between structures.

Rune Magnus Lundetrae – SVP and CFO: Well, I think you can assume that we take that into account, we want to have options on the financing side, but also on the corporate restructuring so you can assume that that’s taken into account.

Pricing Power

Ian Macpherson – Simmons Brokers: We have seen a newbuild partially financed on the North Atlantic side with equity, and that hasn’t really been the way that you have done it on the Seadrill side, but with the returns on newbuild capital looking as good as they are and your outspend, including dividends over the next couple of years expanding, is the Board open minded to utilizing incremental equity for Seadrill to work on more new rigs?

Alf C Thorkildsen – President and CEO: I think it’s kind of a last resort. I think we are able to finance the structure and the newbuilds with debt structures available to us at the moment so, that is what we will explore and if that in the end means that we will have some additional equity, we don’t think so at the moment at least. So, we are very confident with the current financing opportunities open to us.

Ian Macpherson – Simmons Brokers: I was wondering if you could comment also on the comment that you made about more direct negotiations as opposed to the tendering process for leading-edge contract opportunities. How does that compare with the last sub-cycle in terms of what that means in terms of contract strength and day rates? Is there a little connection with pricing power?

Alf C Thorkildsen – President and CEO: It is kind of pricing power question. Firstly and most importantly is that, there very few rigs available and sometimes our clients and our companies are concerned of getting that capacity, so they will just knock on your door. Normally, we knock on their door, this time they are knocking on our door and asking for to sit down and have some negotiation and that is sign of the current supply/demand situation and that is, of course, very positive towards us, we have more control of the process and I think we can in the (process), both the client and us, can achieve a more targeted both pricing and terms which we both can agree upon.

Ian Macpherson – Simmons Brokers: Just lastly, there was the footnote in the release about realized gain on some Rowan shares. I don’t think that we’ve seen disclosure before that you owned any Rowan. Can you comment on what you sold and if you still own any?

Alf C Thorkildsen – President and CEO: I think it’s a very minor position. It was some forward we had on Rowan, but that was a little, so it was not a big issue.

Ian Macpherson – Simmons Brokers: You are out of it now completely?

Alf C Thorkildsen – President and CEO: No, I don’t think we’re totally out of it.

Rune Magnus Lundetrae – SVP and CFO: No, we are today.

Alf C Thorkildsen – President and CEO: We’re today. My right hand side says we are today totally out of it.