Seadrill Ltd., the oil-rig company controlled by billionaire John Fredriksen, beat profit estimates as it deepened cost cuts to counter a slump in demand for offshore drilling. The stock rose as much as 10% in Oslo.
The company, which is struggling with debt in a dismal rig market, said it would announce a funding plan in the first half of the year, while cost cuts were exceeding expectations. Net income rose 82% to $285 million in the fourth quarter, beating the $238 million average estimate in a Bloomberg survey.
“During the fourth quarter we experienced our best operational quarter of the year, while continuing to reduce our cost base,” CEO Per Wullf said in a statement. “In the face of the severe downturn in our industry our priorities for 2016 are to conserve cash and address our financing needs.”
Seadrill, which also said it won a new contract for one of its rigs in Angola, traded 7.8% higher at 15.25 kroner a share as of 9:06 a.m. in the Norwegian capital. The stock is down 83% over the past 12 months.
Offshore drillers including Seadrill’s rivals Transocean Ltd. and Ensco Plc. are suffering as the worst crude market in a generation has led oil companies to cut spending. That has reduced demand for their services just as a wave of new rigs inflated supply. The world’s largest offshore rig contractors are expected to see sales tumble 25% this year and at least another 10% in 2017, according to Bloomberg Intelligence.
Seadrill’s cost savings were $832 million in 2015, exceeding an earlier target of about $600 million. Savings this year will amount to a further $260 million, compared to a previous goal of $200 million, the company said.
In addition to a falling market, Seadrill is struggling with a debt burden that by far exceeds that of its competitors. Total debt at the end of 2015 was $10.7 billion, according to the quarterly report.
The company has started a restructuring process involving its banks, bondholders and shareholders, Wullf said in an interview last month. That will involve raising at least $1 billion in new capital—more than its current market value—according to analysts from Nordea Bank AB and DNB ASA.
Seadrill’s new two-year contract in Angola for its West Eclipse rig has a value of $285 million, though it also reduces the backlog for another rig, the West Polaris, by $95 million, resulting in a net order-backlog effect of $190 million, the company said.
Earnings before interest, tax, depreciation and amortization, which were in line with estimates at $513 million in the quarter, are expected to drop to $450 million in the first quarter, Seadrill said.