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SeaDrill (SDRL) Subsidiary Reports Rig Contract Cancellation

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Hamilton, Bermuda-based offshore drilling firm, SeaDrill Limited (SDRL - Free Report) saw its shares decline 2.2% in the last trading session after North Atlantic Drilling Limited, in which it holds 70% stake, announced a rig contract cancellation by Norwegian oil giant Statoil ASA (STO - Free Report) .

This cancellation notice, which pertains to the contract for the West Epsilon jack-up, came two months before the expiration of the drilling contract between the parties. The West Epsilon rig was originally contracted to provide drilling services in Norway until Dec 2016. However, Statoil has now decided to conclude the rig’s current activities in mid-October.

As per the terms of the contract, North Atlantic Drilling is now entitled to receive a lump-sum payment of approximately $11 million because of the early termination. TheWest Epsilon, on the other hand, is currently being marketed for new contract.

According to the company, the West Epsilon rig has a dayrate was $247,000. Hence, the early termination of the contract has resulted in a decline in North Atlantic Drilling’s backlog by $14 million. The company’s total backlog is now estimated to be around $370 million.

This is another sign that the collapse in crude prices that began in mid-2014 amid a glut of supply and slowing demand for the commodity has affected the offshore drillers badly as oil companies cut back their capital spending.

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Headquartered in London, SeaDrill is one of the leading offshore drilling contractors in the world. The company owns or has partial ownership interests in 68 mobile offshore drilling rigs comprising jackups, semi-submersibles, drillships, tender rigs and semi-tender rig.

Statoil, on the other hand, is a Norway-based major international integrated oil and gas company. Due to its strong offshore exposure, Statoil is a leader in subsea production.

Currently, both the companies carry a Zacks Rank #3 (Hold), which implies that the stocks will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the broader energy sector include Enbridge Inc. (ENB - Free Report) and China Petroleum & Chemical Corp. (SNP - Free Report) . Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last four quarters, Enbridge posted an average positive earnings surprise of 4.8%.

China Petroleum & Chemical, on the other hand, posted an average positive earnings surprise of 1,383.3% in the last four quarters.

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