seadrill partners llc (sdlp) ari lazar, jessica kan, sai poddutur, gongsheng wang new company...
TRANSCRIPT
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Seadrill Partners LLC (SDLP)Ari Lazar, Jessica Kan, Sai Poddutur , Gongsheng Wang
New Company Presentation 3/17/15
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Introduction
Oil drilling company that rents rigs to large oil companies in exchange for daily payments. jack-up rigs, tender rigs, semi-submersible rigs, and drill ships Long term contracts with average duration of 3.3 years
Customers: BP, Exon Mobile, Chevron, Tullow Oil Locations: 10 Oil Rigs in Canada, the US Gulf of
Mexico, southeast Asia and West Africa Major Competitors: Atwood Oceanics, Teekay Offshore
Partners, Ocean Rig UDW, Hercules Offshore Inc Business Phase: Growth Price: $11.70 P/E Ratio: 7.77 52 Week Range: $11.52 - $36.07
Sources: SDLP 2014 Investor Presentation and Yahoo Finance on 3/15/15
Source: trading economic website,3
Macroeconomic Review
Price of oil decreasing drastically in the past few months Decline in price that Seadrill can charge on new contracts Close relationship between oil price, rig count, and revenue
Historic Oil Price
1/7/2000 4/26/2002 8/13/2004 12/1/2006 3/20/2009 7/8/2011 10/25/20130
500
1000
1500
2000
2500Historic Rig Count
Source: SDLP Q4 2014 earnings call transcript
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Relevant Stock Market Prospects
Long Term Contracts Average duration of 3.3 years
Seadrill plans to extend existing contracts at slightly lower prices All contracts are legally enforceable
Unlike Diamond Offshore (DO) who is losing contracts 9 out of 10 contracts are locked in at pre oil crash prices until at least
2017 If price of oil rises, SDLP will likely increase as well
Acquisitions and Expansion Recently purchased new rig in November for $900 Million Management is committed to future expansion New, advanced floaters compared to the aging old floaters
17.30% Dividend Yield Based on current price Management has promised to maintain or raise dividends throughout
2015 Operating agreement forces them to distribute all excess cash
Sources: SDLP 2014 Investor Presentation
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Business Overview- Portfolio
Source: SDLP Q4 2014 earnings call transcript
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Business Overview – Portfolio Changes West Vela
Recently purchased West Vela rig on November 6th for $900 Million $525,000 day rate from BP with contract locked until November 2020
West Vencedor Contract expires at the end of Q1 2015 with a day rate of $218,000 Future contracts for this rig are still being explored Only contract that expires before 2017
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Business Overview - Management
CEO: Graham Robjohns In office since June 2012 Previous experience: CEO and CFO Golar LNG Partners Nov 2009-July
2011 Under his management stock saw over 200% returns
Management Goals and Outlook See themselves to be in a challenging macroeconomic environment Committed to expansion and future acquisitions Maintaining excellent customer service Sustaining or raising dividends
47% of stock held by Seadrill Limited (SDRL) High incentive for highest possible dividends
Source : Capital IQ and SDLP 2014 Q4 earnings call transcript
Source: SDLP Q4 2014 earnings call transcript
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Business Overview - Risks
Price of Oil If Oil prices do not increase new contracts will see a decrease in price West Vencedor rig is a “tender situation” because new contract expires at the end
of this quarter and no agreement has been reached yet on a new contract
One time Expenses Had 36.4 million dollar investing expense for hedging floating rate interest but
remains as a fully non cash movement unless swap is terminated 10 year swap and will directly increase net income if interest rates rise
Natural Disasters Hurricanes or other storms could potentially cause damage to equipment
Alternative Energy Alternative energy may decrease demand for oil in the future
Debt Obligations Very high debt levels which have lead to recent negative outlooks from Moody’s No long term debt due until the end of 2016 98% of debit is locked in at 2.5% + Libor and fully hedged with an interest rate
swap
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Porter 5 Analysis
Threat of Substitutes - Moderate Threat of New Entrants - Low Supplier Bargaining Power – Low Customer Bargaining Power – Moderate/High Rivalry Within Industry - Moderate
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SWOT Analysis
Strengths Long-term, legally enforceable contracts Attractive rates paid daily in cash High dividend pay out rates
Weaknesses Tender situation with West Vencedor rig
Opportunities Contract length extensions with current customers at slightly lower day
rates Acquisitions of new rigs
Threats Challenging macroeconomic environment especially with oil prices
Source: SDLP Q4 2014 earnings call transcript
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Recent Earnings (Q4 2014)
Revenue of $380.6 Million 34.8% Increase year over year Beat Analyst Expectations by $27.04 Million
Net Income of $70.1 Million Before minority interest Slightly lower than Q4 2013
EPS of $0.86 Outperformed analysts expectations of $0.76
Source: Google Finance12
Recent Returns
Source: SDLP Q4 2014 earnings call transcript
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Capital Structure
Cash $243 million in cash $200 million in undrawn revolvers Used to Finance Dividends
Debt No debt due until 2016 $4,302 million Used to finance expansion
Equity $2,044 million 47% of company held by Seadrill ltd (SDRL)
Capital Structure
CashDebtEquity
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Technical Analysis
Source: bigcharts.marketwatch.com
Current Price Below 20 day and 200 day moving averages Strong bearish signal
Source: Capital IQ15
Financial Analysis
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Financial Projections - Revenue
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Financial Projections
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Discount Rate
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DCF
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Price Target Sensitivity Analysis
Discount Rate
Change in O
il Pri
ce
Source: Capital IQ21
Comparable Analysis
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Comparable Analysis
Source: Capital IQ
Large difference in comparable implied price and market price Levered ratios vs. Unlevered ratios Seadrill has more debt than competitors
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Comparable Stats
-1
0
1
2
3
4
5
Seadrill Partners LLCComparables Average
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Recommendation
Current Price: $11.70 DCF Implied Price: $30.83 Comparable Analysis Implied Price: $32.98
Average Projected Price of $31.90
Technical Analysis Conclusion: Sell
We recommend adding SDLP to watch list Should be reconsidered if macroeconomic conditions improve