Ordinarily, a sudden change in management during a highly valued growth/momentum story would be expected to shake up the stock. But then Seadrill (NYSE:SDRL) has never been an ordinary story and it looks like the markets aren't too troubled by news of a new CEO and a possible corporate relocation. While I'd be inclined to agree that Wednesday's news really doesn't change a lot for the company, valuation is still pretty robust on this name.

Discount Brokers Comparison: Your one-stop shop for finding the perfect broker for your investments.

A Shake up in the Big Office
As part of its two-part news announcement Wednesday, Seadrill announced that the company and CEO Alf Thorkildsen "mutually agreed" to part ways. Thorkildsen has not only seen the company through some very difficult times for the deepwater drilling industry, but saw the company increase its revenue substantially and become one of the most dynamic names in offshore drilling. Although Seadrill has not surpassed Transocean (NYSE:RIG) in size, RIG is no longer necessarily the go-to name anymore for investors who want exposure to deepwater drilling.

Thorkildsen will be replaced by Fredrik Halvorsen, who had served as the CEO of Archer Limited since early 2012. Although a quick look at Archer's stock performance might not instill much confidence in investors, Archer had issues before Havlorsen's appointment as CEO and those issues haven't been helped by a challenging services market (a market that has made conditions more difficult for companies such as Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) as well).

What Will Change on a Day-to-Day Basis?
I would think that the structure of Seadrill's operations would also help mitigate the disruptions from this switch. While I don't mean to suggest that Thorkildsen's leadership was unimportant to the company, Seadrill is a company with a deep management team, a very active board, and a lot of decision-making power given to regional operating managers. What's more, Archer is part of the John Fredriksen business empire (which includes Seadrill, Marine Harvest, Golden Ocean, Frontline (NYSE:FRO) and Golar LNG (Nasdaq:GLNG)), so it is not as though Mr. Halvorsen's capabilities are unknown to the company.

SEE: A Guide To CEO Compensation

A Change in Geography Likely to Be a Net Positive
Investors in Seadrill are likely already aware of the company's complicated structure, what with an MLP on the way for part of the operations, the spin-off of North Atlantic Drilling Limited and so on. What's more, the company is legally domiciled in Hamilton, Bermuda anyway. Nevertheless, management is looking to relocate the operating base for Seadrill Management AS (essentially the "home" of the management team).

Apparently, London, Dubai, Singapore and Houston are all under consideration and all have their advantages. Stavanger, Norway (the current location of Seadrill Management AS) is not exactly a hot area for relocation, and management claims that relocation could improve their ability to attract and retain talent. While that may be true, it's hard to overlook the fact that Dubai and Singapore would both offer certain tax advantages. That's particularly worth noting given a long-running battle with the Norwegian government on a tax issue worth over $250 million.

Whatever the reason(s) for the move, relocating to any of these four cities would not harm the company, and could in fact help with management recruitment/retention and tax efficiency.

The Bottom Line
Generally speaking, it's uncommon for a change to an already well-run company to be a net positive. Nevertheless, the nature of Seadrill's management structure should mitigate some of the disruption that goes with the CEO transition. What's more, nothing about these moves changes the larger issues for the company and the stock. This remains a highly leveraged company in a very cyclical industry and though offshore drilling and energy service demand has been looking a lot better than onshore lately (particularly in North America), Seadrill's valuation already assumes pretty bold expectations for the coming years.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Stock Analysis

    The Top 5 Platinum Penny Stocks for 2016 (PLG, XPL)

    Examine five penny stocks in the platinum mining business that investors may wish to consider adding to their investment portfolios for 2016.
  5. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  6. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  7. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  8. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  9. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  10. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center