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Seadrill Ltd. Stock Is Up 11% Before Earnings: Here's What Investors Need to Understand


In other words, even if Seadrill's revenue and earnings results come in better than analyst estimates, it won't change the big problem that the company faces, namely incredibly weak demand for new exploration work offshore.

A perfect example of this? The recent news that Statoil ASA had terminated a drilling contract with Seadrill for work in the North Atlantic, and would pay the company $61 million not to drill for the next six months. When offshore producers are willing to pay a company to not drill, that's a pretty clear sign that the offshore market is far from a recovery.

Bottom line: Tomorrow's results matter inasmuch as they demonstrate that the company is continuing to drive down its expenses and maintain cash, but the biggest concern investors should have is whether the company has a large percentage of its fleet with contracts expired or expiring and producers aren't exactly lining up to put them back to work.

In other words, what matters most with Seadrill isn't how much business it tells us it did last quarter, but what management is doing to position the company to ride out an offshore market that continues to deteriorate. Offshore will eventually recover, but Seadrill must survive the downturn, and that's what matters most right now.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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