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. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  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 >>

You May Also Like

Trading Center