SeaDrill slumps after Chapter 11 warning

Shares in SeaDrill, the oil rig owner controlled by influential shipowner John Fredriksen, plunged on Tuesday after the company gave its latest warning that it could be forced into bankruptcy protection in just over two months.

The company, which owns 64 oil rigs and drilling ships, gave the warning alongside the postponed announcement of its full-year results for last year, which showed a net loss for the year of $111m, down from a $635m loss for 2015.

However, the main point of interest was the company’s warning that it would be “challenging” to reach a full consensual restructuring agreement before April 30. A lending facility linked to the West Eminence, one of Seadrill’s rigs, matures on that date, while the date is also a “milestone” under amendments to the company’s bank facilities agreed last year.

“In the event a consensual restructuring agreement is not concluded or an agreement to an extension is not reached, we are also preparing various contingency plans, including potential schemes of arrangement or Chapter 11 proceedings,” the company warned.

The New York-listed shares were down almost 15 per cent on Tuesday at $1.74.

Like other owners of drilling rigs, SeaDrill has been struggling to cope with a slump in charter rates and a sharp slowdown in activity as lower oil prices have made offshore oil exploration unattractive for producers.

The company has net interest-bearing debt of $8.48bn. Mr Fredriksen, 72, in February told the Financial Times the effort to restructure Seadrill’s debt was the most complicated transaction in his five-decade career in shipping. The company said on Tuesday that feedback from “certain stakeholders and new money providers” indicated that a comprehensive and consensual restructuring would probably require conversion of the company’s bonds into equity.

“Under such circumstances, the new capital raise and any resulting debt conversion would likely result in substantial dilution to current shareholders and potential losses for other financial stakeholders,” the company warned.

Any Chapter 11 filing would mark the first time that any of the companies Mr Fredriksen founded has defaulted on its debt obligations. He has previously used his own resources in two separate rescues of Golden Ocean, the dry bulk shipping company he controls, and in one rescue of Frontline, the crude oil tanker operator.

Seadrill’s statement said that Hemen Holdings, Mr Fredriksen’s private vehicle, was involved in discussions about potentially providing new financing to the company.

Mr Fredriksen stressed in his recent comments to the FT his determination to maintain his financial record, which sets him apart from many other leading shipowners.

“I’ve never defaulted historically — not with banks, not with any loans,” Mr Fredriksen said.