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Stena: The Ebb And Flow

01 June 2017 by lberuti

The risk premium of STENA has experienced a rollercoaster ride since the beginning of the week. The origin of most of the moves were to be found in the Drilling unit. The company started by reporting better than expected results for Q1 2017, which were mainly supported by cost savings in the Drilling unit, from the “Cost Race” program, offsetting revenue pressure in this segment resulting from reduced contract coverage. STENA’s 5-year risk premium tightened 26bps to 675bps on Tuesday. Yesterday, oil fell 3%. But, if a lower oil price environment stands to be favorable for shippers like CMA (CMA CGM), it is negative for STENA, giving its significant drilling exposure. STENA’s 5-year risk premium bounced 18bps wider to 693bps. Today, the Drilling unit announced they notified Samsung Heavy Industries (SHI), the Korean shipbuilder, that they have exercised their right to cancel the contract for the construction of “Stena MidMAX”, a dynamically positioned harsh environment semisubmersible drilling unit. SHI has been unable to deliver the rig which was ordered 4 years ago with an expected delivery date in March 2016. The terms of the contract should entitle STENA to the reimbursement of $215mln already paid in pre-delivery installments. So far analysts had been unsure whether STENA would have to take delivery of the vessel, and investors reacted by sending STENA’s 5-year risk premium 35bps tighter to 658bps.