Seadrill Partners IPO

Seadrill Partners (SDLP), a subsidiary of Seadrill Limited (SDRL), set the price for the upcoming IPO on Monday. They plan to sell 8,7500,000 common units in the price range of $20-$22. The company expects to IPO next Tuesday, 10/23.

Seadrill Partners will own interests in four offshore drilling rigs. The rigs are signed to multi-year contracts (average of 4.1 years left) with major oil companies.

I have analyzed this IPO and I do not expect a pop in these shares.

  • At a $22 IPO price, SDLP will only yield 7%.
  • Unlike Susser, there is limited growth over the next 3-4 years.
  • There is no guarantee that they will be able to sign the next contract after the initial contract expires.
  • There is no guarantee rates will not go down on the next contract.
  • Although all rigs are very new, there will be a time when the rigs will need to be replaced.

There are a lot of risks involved with this IPO and I advise investors not to subscribe. 

Disclosure: I do not own shares of SDRL.

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