Analysis and Valutation of Seadrill Ltd.

Sindre A. Vesterdal

Student thesis: Master thesis


Seadrill is one of the world-leading offshore oil- and gas-drilling contractors. The company has undergone a period of high growth since its incorporation in 2005. This paper investigates to what extent the company will continue to grow profitably into the future, with the focus on the value of equity. The main objective of this paper is to perform a valuation of the equity in the offshore drilling contractor, Seadrill Ltd, with the explicit research questions: What is the fair value of shareholders’ equity in Seadrill Ltd. per May 1st 2013? Why does it deviate from the actual market price? Various analyses of Seadrill’s macro environment, competitive position and internal resources, together with a financial statement analysis were carried out. Seadrill was found to have high financial leverage and high operational exposure to favorable market segments. The company was found to possess a young and modern fleet of drilling units. Furthermore, the competition in the offshore drilling industry was perceived as intense. These and other factors are translated into forecasts of various financial figures. Based on the forecasts, and an appropriate discount rate, the absolute DCF-based valuation approach suggests a fair value of equity per share of $41. Relative valuation techniques were also applied, pointing towards an equity value per share in the range of $24.1-$36.4. Additionally, the net asset value per share was calculated to be $23.8. However, none of these valuation models were found as reliable as the DCF-based approach in reflecting the fair value of equity in Seadrill. The main case value estimate for the equity in Seadrill is $41 per share as of May 1st 2013, suggesting some 8% upside potential to the currently observed market price. The sensitivity of this estimate was tested with respect to central assumptions, and it was shown to be especially sensitive to assumptions about the discount rate. Additionally, two alternative scenarios to the main case scenario were carried out, in which assumptions about central macroeconomic factors were changed.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2013
Number of pages104