Oil rig firm Seadrill is looking to raise at least $1 billion in new capital as it warned talks to restructure debt and liabilities worth $14 billion are taking longer than expected, wiping a quarter off its market value.
Once the crown jewel in the empire of shipping tycoon John Fredriksen, Oslo-listed Seadrill’s shares have fallen 90 percent in the past three years as plunging crude prices and drastic spending cuts among oil companies have pushed daily rig rates for oil drillers down towards breakeven.
Although an oil price rise has helped some services providers recover, companies such as Seadrill Transocean and Vallourec have lagged as surplus offshore rigs built during the boom are now lying idle, while debt repayments must still be honoured.
Seadrill’s heavy debt and repeated delays to its refinancing plan have also spooked investors.
Tuesday’s announcement focused on the company’s $8.2 billion secured debt. In addition, Seadrill has unsecured debt of $2.3 billion and contingent liabilities of $3.5 billion, bringing its total liabilities to $14 billion.
“These negotiations have proved to be more complex than we had originally anticipated,” Seadrill CEO Per Wullf said in a statement. Some 42 banks are involved in the talks on top of the bondholders.
“Nevertheless, key stakeholders have demonstrated a clear desire to be part of a solution and with the right structure and terms we believe there is significant capital available to us,” he said.
Hemen Holding, one of Fredriksen’s investment vehicles, is the top shareholder in Seadrill with a stake of 23.61 percent.
“Seadrill has mostly found agreements with its banks, but has not quite found a solution with everyone else,” said Carnegie analyst Frederik Lunde.
“They warn that, if they don’t reach their target by mid-February, they will move towards Chapter 11. So this means they will be negotiating in overtime over the next two weeks.”
In a confidential note to bondholders in December, which Seadrill released on Tuesday, the company said an agreement with all key stakeholders would be required by the end of January.
“We intend to solicit support for the Recapitalisation Plan so that it may be implemented out-of-court, through Schemes of Arrangement or through Chapter 11,” referring to bankruptcy protection intended to allow a company to restructure its debt while continuing to operate.
The company depends however on a surge in rig rates over the next several years for its proposed restructuring to be successful, the documents released on Tuesday showed.
For its key floater rigs, the plan assumed an increase of 133 percent in rates to $420,000 per day in 2020 from just $180,000 in 2017.
“In our view it’s a little bit high and on the optimistic side, Clarkson Platou credit analyst Eirik Roehmesmo told Reuters.
Shares in Seadrill, which initially fell by almost 25 percent, were down 14.4 percent at 1158 GMT, against a flat European oil and gas index.
Seadrill now plans to raise at least $1 billion in new capital; extend bank maturities to the period from 2021 to 2023, reduce fixed amortisation and amend financial covenants; and extend the maturity of unsecured claims to mature in the period from 2025 to 2028.
Seadrill aims to reach a restructuring deal before the maturing of a bond on the West Eminence rig on April 30 and if it does, the plan would be implemented during the second quarter.
The restructuring is complex because it involves so many parties but also because it involves several Seadrill subsidiaries, including North Atlantic Drilling Seadrill Partners, Archer, Sevan Drilling and Asia Offshore Drilling.