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Can Seadrill (NYSE:SDRL) Rise?

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The stocks of Seadrill (NYSE:SDRL) are trading quite low these days due to the decline in the prices of oil. The decline has proved how much risk the drilling companies have to take, even if they have a lot of money in the backlogged contracts.

The drop in the Seadrill prices is an opportunity for those investors who want to make some money. Despite the low oil prices, the company is making a lot of money, and it can go even higher if the prices rise a little.

The change in the oil prices has caused the stocks of the company to fall. A positive change can make the stocks go up. It will not be wrong to say that the price of oil will determine the leverage of drilling companies, like Seadrill (NYSE:SDRL), when they begin negotiations for their 2015 and 2016 drilling contacts. More and more rigs are being opened. Seadrill has around 16 rigs. If the demand of oil remains low whereas the rigs are in an excess, the prices of oil can drop even further.

On the other hand, if the prices of oil increase even a little, say for instance $80 for each barrel, the drilling companies can recover quickly, for the day rates will remain strong and the contracts will pick up.

Seadrill (NYSE:SDRL) recently reported an EBITDA of $842 million for its 3rd fiscal quarter. This was the second best EBITDA that the company ever reported. If the financial figures of the company remain unchanged for the next 2 years, chances are that the stocks will go up.

Seadrill has successfully gathered some strong contracts for the new drill rigs, despite the fact that the oil prices are running low. The company sealed a deal with Petrobras for around $2.2 billion of contracts. The contracts included 4 rigs with a lifetime of 3 years, which means that Seadrill will have a dayrate of around $500,000. If the figures remain this strong, the stocks of the company can recover very quickly.

Seadrill can have a strong cash flow rate if the company can lock a contract for another 4 deep water rigs. If this happens, the company can pay off its debts, or even better, it can pay some dividends to its stockholders. The floaters coverage is currently at 91 percent for the year 2015 and at 74 percent for the year 2016; meaning that Seadrill needs only a handful of new contracts in order to beat the estimates.

The stocks of the company came down due to its weak balance sheet. The company has around $13.1 billion in debts and $4 billion in yard installments, which means that $2 billion of annual dividends, hanging over Seadrill’s head, will come as a big burden.

Coming to the stocks of Seadrill (NYSE:SDRL), the company is currently trading in the range of $11.16 and $11.75. As far as the market capitalization of the company is concerned, the figures currently stand at $5.74 billion.

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