In a recent article, I discussed how Seadrill's (SDRL) strong and stable cash flow provides a considerable amount of confidence in the company's ability to support its debt payments over the next few years despite the fact that the overall conditions in the industry are quite challenging. Should the company's cash flows begin to decline from events such as contract cancellations or other unforeseen events, then Seadrill still has a number of options available to it to avoid bankruptcy. These options will be discussed in this article.

One option that Seadrill has available to it is the sale of offshore drilling rigs to Seadrill Partners (SDLP). When Seadrill Partners was created in 2012, it was granted the option to purchase any rig in Seadrill's fleet that obtains a contract that is five years in length or longer. There are currently four such rigs in the company's fleet, West Jupiter, West Polaris, West Mira, and West Orion. However, the current contract for the West Orion is scheduled to end in July of 2016 so it is unlikely to be a candidate for a dropdown. The sale of one or more of these rigs will make a substantial contribution to Seadrill's financing needs, which total $4.8 billion over the next two years. This is evident when we look at the historical sale price of rigs such as these. For example, the most recent rig that was purchased by Seadrill Partners, West Vela, had an implied purchase price of $900 million, although $433 million of that was the assumption of the debt on the rig. The actual amount of cash that Seadrill received from that transaction was $238 million. Thus, by dropping down a rig, Seadrill successfully reduced its debt and received a significant amount of cash that it could use to further reduce its debt. In addition, West Vela was purchased by an entity in which Seadrill owns a 49% interest. Should Seadrill pursue this option to reduce its debt going forward, this would not need to be the case. Seadrill Partners could instead acquire the rig directly (as it did with its tender rigs), resulting in Seadrill receiving a much greater amount of cash.

Another option that Seadrill has available to it is to sell a rig to one of the related companies in the Fredriksen Group, Ship Finance International (SFL). This is a strategy that the company has used in the past. Currently, three of Seadrill's rigs, West Linus, West Hercules, and West Taurus, are owned by Ship Finance. Seadrill is leasing these rigs from Ship Finance for bareboat charter rates under a fifteen year lease. Seadrill could presumably enter into a similar arrangement for another one of its rigs should it run into financial troubles. This would result in Seadrill receiving an infusion of several hundred million dollars, which it can use to overcome these difficulties.

The final option that Seadrill has available to it should its cash flow prove insufficient to meet its financing needs comes from virtue of the fact that two of the company's major shareholders are among the wealthiest men in the world. These two shareholders are Cypriot billionaire John Fredriksen and Chinese billionaire Tong Jinquan. As both of these men hold substantial positions in Seadrill, it is unlikely that they will allow the company to go bankrupt. One way that they could support the company if it runs into trouble is a shareholder loan. Seadrill could, for example, do a private debt offering to one or both of them to obtain the money that it needs to meet its financing needs.