Seadrill warns on ‘substantial’ losses as bankruptcy fears mount

Seadrill’s shares plunged on Tuesday after the oil rig owner warned investors to brace for “substantial” losses in the face of potential bankruptcy proceedings.

Shares in the heavily-indebted Norwegian and US-listed group fell as much as 46 per cent in Oslo as concerns mounted over its attempts to refinance its $8.5bn debt burden.

Like many oil rig owners, the offshore drilling specialist, which is controlled by shipping magnate John Fredriksen, has struggled to cope with the sharp downturn in activity in the global oil and gas industry after crude prices crashed in mid-2014.

Although there has been a recent pick-up in activity in some parts of the industry, in particular US shale, conditions remain challenging for the offshore sector, with some drilling contractors bidding for work at a loss simply to keep their rigs active. 

Seadrill has been trying to reach an agreement with its bank lenders, bondholders and others that might be prepared to inject cash into the company, including Mr Fredriksen’s private vehicle Hemen Holdings, over its debts, which stood at $8.48bn at the end of 2016.

On Tuesday, the company said it had secured additional breathing space in order to try to secure an agreement, including an extension of the deadline, or “milestone”, to implement a restructuring plan from the end of this month to July 31.

Its banks have also agreed to extend maturity dates on various lending facilities totalling $2.85bn.

However, its shares fell sharply after the Oslo market opened, as it warned that any restructuring plan would require a “a substantial impairment or conversion of our bonds, as well as impairment, losses or substantial dilution for other stakeholders”.

"As a result, the company currently expects that shareholders are likely to receive minimal recovery for their existing shares,” Seadrill said in a statement.

The group, listed in both Oslo and New York, has previously warned that it could be forced to seek bankruptcy protection. It repeated that warning on Tuesday.

We expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement or Chapter 11 proceedings, and we are preparing accordingly

“We expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement or Chapter 11 proceedings, and we are preparing accordingly,” Seadrill added in the statement.

Mr Fredriksen has previously described Seadrill’s efforts to restructure its debts as the most complicated transaction in his five-decade career in shipping.

He told the Financial Times in February that Seadrill had become too reliant on short-term bank lending. “The capital structure was wrong. It was too short loans, too much guarantees, things like that,” he said at the time. 

Seadrill’s Oslo-listed shares fell as much as 46 per cent early on Tuesday but have since recovered some of their losses. They were down 38 per cent at 11.30am London time on Tuesday to NKr8.60.

The shares have lost 96 per cent of their value since mid-June 2014 when oil prices began their sharp descent from more than $100 a barrel.