Seadrill Ltd. (SDRL), the second-largest owner of ultra-deepwater drilling rigs, fell the most in three weeks in Oslo after Pareto Securities AS cut its recommendation on expectations of lower day-rates.
The Bermuda-based company fell as much 2.1 percent, the most intraday since Sept. 27, and traded 1.8 percent lower at 272 kroner as of 10:54 a.m. in the Norwegian capital.
Seadrill is expanding its fleet in anticipation of rising demand from energy companies that are extending the search for oil and gas reserves into deeper and harder-to-access regions. The stock gained 34 percent in Oslo this year, the biggest gainer on the Bloomberg EMEA Oil & Gas Index, and reached a record intraday level of 289.4 kroner on Sept. 4.
The company’s valuation is now “starting to be demanding,” Pareto said in an e-mailed note today. Demand for ultra-deepwater rigs will probably slow in 2014 “with oil companies cautious to commit to new exploration campaigns during a tight budgeting season.” The broker reduced its day-rate estimates for ultra-deepwater rigs to $575,000 from $600,000 and downgraded the shares to hold from buy.
While Seadrill is benefiting from a “strong rig cycle,” has a $19 billion order backlog and consistent dividend support, the “risk/reward is now up with events,” HSBC analysts David Phillips and Phillip Lindsay said in July. “The high dividend yield theme should limit downside, but we think current levels price in much of the potential in ultra-deepwater.”
Seadrill, controlled by billionaire John Fredriksen, has 64 units including drill-ships, jack-ups, semi-submersible rigs and tender rigs, with more than 20 being built. An ultra-deepwater rig can drill for oil and gas deposits in water depths of 7,500 feet (2,300 meters) to 12,000 feet.
The company is the largest owner of ultra-deepwater rigs after Switzerland’s Transocean Ltd. (RIG:US)
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