Here’s why you should exit the stock
2017 seems to be a difficult one for Seadrill Ltd (NYSE:SDRL), despite the fact that oil markets have rebalanced to some extent and so have the oil prices, providing a much needed relief to oil companies.
The basic reason we remain cautious on Seadrill is that following the deal of OPEC and Non-OPEC members to reduce their production, the investments in oil and gas infrastructure would decline. Already, the order backlog is in decline and if it goes further down, it would erode its revenues further, resulting in deteriorating financial performance.
The oil and gas companies trimmed down their spending in infrastructure by around 25% in 2015. In 2016, the decline remained flat with a 24% decline. Further bad news for the company is that the reversal is not expected soon this year either.
With major oil producing countries curbing their production, the offshore drilling for Seadrill is expected to decline. As per Moody’s, the sluggish performance and downturn in offshore drilling industry is expected to persist in 2017 as well.
In addition, the construction of higher number of rigs would result in glutting the market and a further decline in day rates.
The company is already suffering from lower backlog and lower day rates, any decline further would result in hampering the company’s performance and pushing it further down.