The last time the world's largest oil and gas drill operator, Seadrill, halted its dividend payment was in 2009, shortly after Lehman had filed and the world was engulfed in a massive depression. Retrospectively, this made sense: the company was struggling not only with depressionary oil prices, but with a legacy epic debt load as can be seen on the chart below.
So the fact that the stock of Seadrill collapsed by 20% today following a shocking overnight announcement that it had once again halted its dividend...
... despite what is a far lower debt load than last time, indicates that when it comes to energy companies, the current global economic "recovery" - if one believes the rigged US stock market - is actually worse than the Lehman collapse.
Some more details from FT, on what is said to be a Seadrill "perfect storm" involving the declining oil price and Russian sanctions, and which is why the company just went into cash clampdown mode:
Seadrill’s shares fell as much as 18 per cent on Wednesday morning following the announcement of its third-quarter results, in which the Oslo-listed company reported a 40 per cent fall in net income. The shares recovered somewhat by early afternoon, and were down 10 per cent.
The sharp fall in the oil price since June, plus an oversupply of drilling rigs, has coincided with uncertainty over the future of an Arctic exploration deal involving Seadrill subsidiary North Atlantic Drilling and Rosneft, the Russian state owned energy company.
“It has almost been a perfect storm for Seadrill this quarter,” said Rune Magnus Lundetrae, chief financial officer, “in terms of downward pressure on the oil price, the demand-supply balance for rigs, increasing cost focus from the oil companies and then geopolitical uncertainty surrounding the Rosneft deal, the biggest offshore contact we have ever signed.”
Seadrill is controlled by billionaire John Fredriksen. Both Seadrill and NADL – which specialises in the Arctic and harsh offshore drilling environments – are listed in New York.
From Perfect storm to no more dividend:
By suspending the dividend, the company was “acting responsibly, before we are forced to”, Mr Lundetrae said. Seadrill instead intends to strengthen its balance sheet by cutting debt, putting itself in a position to consider possible acquisitions.
Mr Fredriksen said the decision to suspend the dividend had been a difficult one for the board. “However, taking into consideration the significant deterioration in the broader offshore drilling and financing markets over the past quarter, the board believes this is the right course of action for the company,” he added.
And while we know that Obama's Russian "costs" pushed Europe into a triple-dip recession (sorry, but those benefits from hookers and blow will soon run out), it appears now Obama has taken aim at shareholders of publicly-traded companies:
Mr Lundetrae said the uncertainty around Rosneft – which has been affected by western sanctions imposed on Russia over the Ukraine crisis – had added to negative sentiment in the energy industry.
US sanctions on Russia “look very challenging to operate within . . . given all the US equipment on our rigs”. But Mr Lundetrae said Seadrill is still working with Rosneft, having just extended a walkaway clause to May next year.cd
But the worst news is for bondholders of energy Junk here in the US: because at least according to SDRL that default wave among high yield energy companies that DB warned about is about to strike:
Mr Lundetrae said Seadrill was not convinced the market would revive in the next 18 to 24 months, with next year likely to be worse than this year. Meaningful recovery was more likely in 2017, he added.
As they just warned:
- *SEADRILL SAYS SOME FINANCING MARKETS HAVE BECOME UNATTRACTIVE
Which is clear as 5Y bonds trade well above 9.5% yields...
Perhaps this is an opportune time to reread the warnings from 2 weeks ago about what may and likely will happen to the US junk bond market unless OPEC pulls a miracle out of a hat tomorrow: If WTI Drops To $60, It Will "Trigger A Broader HY Market Default Cycle"
But fear not: those same bondholders who are about to be wiped out will soon be allowed to sell their worthless bonds to the ECB's latest monetization contraption and use the proceeds to buy stawks at recorder all time highs, because just like CYNK, unless the S&P 500 keeps exponentially rising on ever lower volumes, it has only one other, far less pleasant, option.