Seadrill Partners (former (SDLP), current (SDLPF)) has recently received notification from NYSE stating that the proceedings to delist the company’s common units have commenced. The reason for this was the company’s low market capitalization. The trading of Seadrill Partners' units on NYSE has been suspended, and the shares started trading on the OTC market. Seadrill Partners stated that it intended to appeal the delisting determination and that delisting procedures would be suspended pending the outcome of the appeal.
Apparently, the market has lost any faith that Seadrill Partners’ negotiations with creditors can end with anything different than a complete wipeout of unitholders and equitization of debt. Let’s look at the numbers. Seadrill Partners ended the second quarter with $552 million of working capital and $2.8 billion of long-term debt which is due 2020-2021. Seadrill Partners should reach the deal with creditors before October-November 2020 as its two drillships, West Auriga and West Vela, will roll-off contracts with BP (BP) that have dayrates of $575,000. Current drillship dayrates have just exceeded $200,000 for recentSeadrill (SDRL) contracts, so while I’d expect drillship rates to continue rising through 2020, they will certainly be much less than those of the previous contracts, and Seadrill Partners will take a cash flow hit.
The above-mentioned $2.8 billion debt should be serviced by just 6 rigs – semi-subs West Aquarius and West Capricorn and drillships West Polaris, West Capella, West Auriga and West Vela. Two semi-subs, West Sirius and West Leo, are currently cold stacked and are unlikely to be unstacked any time soon, if ever. The tender rig segment (T15, T16, West Vencedor) is also in a challenging position since only T15 has a contract that ends in September 2019.
So, this is the picture that creditors are now looking at. For the sake of conservatism (and creditors are by definition more conservative investors than common units owners), let’s mentally write off all tender rigs and cold stacked rigs and see what the value of Seadrill Partners' fleet is in this case. Here are current Bassoe estimates: 1) West Aquarius: $374-413 million; 2) West Capricorn: $132-146 million; 3) West Polaris: $182-201 million; 4) West Capella: $195-216 million; 5) West Auriga $272-300 million; 6) West Vela $272-300 million. In the midpoint, the “core” fleet is valued at $1.5 billion. There’s a problem, though: