Seadrill has entered into a turnkey contract to build a new ultra-deepwater drillship at the Samsung yard in South Korea. The project value price is estimated to be around US$600 million (including project management, drilling and handling tools, spares, capitalized interest and operations preparations) with tail-heavy payment terms payable upon delivery, which is scheduled within the fourth quarter 2014.
Delivery is scheduled for the fourth quarter 2014. In addition, Seadrill has agreed a fixed price option to build a further drillship at the yard, with delivery in the first quarter 2015. With the current strong demand there is limited availability of rigs in 2014 and Seadrill believes it is likely that the option will be exercised and is currently discussing details of upgrades of that unit.
The drillship will be of the same design as the existing six drillships under construction at Samsung and will have a hook load capability of 1,250 tons and a water depth capacity of up to 12,000 feet targeting operations in areas such as the Gulf of Mexico, Brazil and West and East Africa. Also, these units will be outfitted with seven ram configuration of the blowout preventer (BOP) stack and with storing and handling capacity for a second BOP.
Yard costs are currently at very attractive levels. This together with the delivery time in 2014, the strength of the ultra-deepwater market and Seadrill’s proven track-record of taking delivery on time and on budget makes this into an investment which is likely to deliver an excellent return to our shareholders.
Seadrill’s construction program now totals 19 units, including 7 drillships, 2 harsh environment semi-submersibles, 5 tender rigs and 5 jack ups. In addition the Company has fixed priced options for three ultra-deepwater/harsh environment units.
The initial installments for the new drillship will be funded by liquidity from the recent US$1 billion bond offering.
Chairman of Seadrill Limited John Fredriksen says, “We have a unique environment where both daily rates and contract duration are increasing to new highs, while yard prices remain low due to the overcapacity in the shipyard industry. This presents an excellent investment opportunity under which we can continue to aggressively grow Seadrill. The new ordering has been evaluated up against several M&A and asset proposals but the Board has concluded that organic growth through contracting new buildings at attractive prices is likely to give higher long-term return to shareholders. The deepwater drilling industry is transforming from an exploration to a development industry. Such a transformation will trigger a significant increase in the need for the drilling of production wells in order to connect the fields that have been successfully explored in the recent years.”
Fredriksen continued: “Seadrill is best positioned within the drilling industry to meet this tightness. We have in total nine ultra-deep/ harsh environment units for delivery in 2013 – 2015 plus options for an additional three. Two of these units have already been employed on long-term contracts. We are currently in specific discussions regarding attractive long-term employment opportunities for a majority of the remaining firm units. Clarification around these fixtures should be expected in the months to come. The Board has in recent press releases expressed that they are confident that an attractive financing package can be arranged for the new building program. This situation has further improved in the recent months, driven by a well oversubscribed bank financing, good progress on the export financing side as well as the successful trading of the new US$1 billion five-year unsecured note. With a total order backlog in excess of US$20 billion which is likely to increase further in the months to come the Board is confident that the new ordering can be financed without raising additional equity and will contribute positively to future valuation as well as dividend capacity. Seadrill will continue to monitor opportunities in the new building market including the possibilities to declare the existing three options. The target is to continue to grow Seadrills organization, fleet and earnings potential in an optimal and dynamic way. The Board is increasingly excited about the strength of the market and the way Seadrill is exposed to this operationally and financially.”
- Pacific Drilling Extends Option to Build Eighth Drillship (South Korea) (worldmaritimenews.com)
- Ultra Deepwater Drilling Poised to Take Advantage of Supply Demand Imbalance (dailyfinance.com)
- Rolls-Royce to Power High Tech Drillships (maritime-executive.com)
- Seadrill Secures Contracts for Three Ultra-Deepwater Units in GoM (worldmaritimenews.com)
- It Seems That Seadrill Will be Buying Beers Today (gcaptain.com)
- SDRL – Seadrill Partners LLC Files for Initial Public Offering (sys-con.com)
Sept. 21, 2012, 1:04 p.m. EDT By Melodie Warner
Seadrill Partners LLC filed plans for an initial public offering estimated at up to $225 million.
The limited liability company was formed by Norwegian oil-services company Seadrill Ltd. (SDRL, SDRL.OS) to own, operate and acquire offshore drilling rigs.
Seadrill Partners said it will use the proceeds to buy from Seadrill Ltd. interests in Seadrill Operating LP and Seadrill Capricorn Holdings LLC, which own and operate Seadrill Partners’s offshore drilling rigs.
After the planned offering, Seadrill Partners said it will own a 30% stake in Seadrill Operating and a 51% stake in Seadrill Capricorn Holdings.
The company said its drilling rigs are under long-term contracts with major oil companies, such as Chevron Corp. (CVX), Total S.A. (TOT, FP.FR), BP PLC (BP, BP.LN) and Exxon Mobil Corp. (XOM), with an average remaining term of 3.1 years as of June 30, according to its regulatory filing.
Seadrill Partners said its profit rose 5.6% to $93.9 million as revenue increased 11% to $275.2 million for the six months ended June 30.
The company has applied to list its common units on the New York Stock Exchange under the symbol SDLP.
Seadrill Ltd. reported last month its second-quarter earnings fell 14% as higher operating expenses masked the company’s 13% rise in revenue.
The stars are aligned for the success of the ultra-deepwater (UDW) drilling industry. As crude oil prices remain substantially high, oil exploration companies are going farther offshore to obtain new supply sources, supporting the demand for UDW drilling. At the same time, the cost of purchasing UDW drillships remains low, as shipbuilders clamor for any sort of construction orders (rigs and ships) because of the extreme downturn in the shipping industry.
UDW drilling refers to drilling beginning at water depths of more than 7,500 feet. Companies in this field contract out their UDW drilling rigs along with the necessary equipment and work crew on a daily rate basis to drill wells for customers. The nature of the business is very specialized, meaning that it is difficult for a new entrant to replicate the business model and attempt to muscle itself into the picture. Furthermore, the business model is fairly simple. Companies aim to profit from the difference between the daily rates that they charge their customers, and the daily operating expenditures (“OPEX”) that they incur while servicing drillships. So long as daily rates remain high and OPEX stays low, UDW drillers will make a tidy profit.
Fortunately for drillers, the demand and supply dynamics of the industry is in their favor. A typical drillship scheduled for delivery in 2015 can be purchased at around US$650 million, while the ongoing daily rate of a typical UDW drillship is around US$600,000. Assuming daily OPEX of US$200,000, a UDW drillship should bring in about US$400,000 daily. Considering these assets cost an average of US$650 million each and estimated useful lives of around 25-30 years, this spread between daily rates and OPEX could potentially generate US$730 million for the rig owner in five years.
Following the 2010 oil spill incident by BP in the Gulf of Mexico, increased regulation and greater scrutiny has limited the entrant of new UDW players. These policies entrench the incumbent UDW drillers and support the daily rate that companies can charge oil exploration companies such as ExxonMobil. At the same time, prices of new drillships remain low as the global shipbuilding industry goes through a deep cyclical trough. This means that shipbuilding houses are more likely to charge lower prices to obtain any business possible to make up for lost orders from the shipping sector.
Here are some of the drilling companies that have a higher proportion of exposure to UDW drilling and could potentially profit from the demand and supply imbalance in the industry. (Click here to access free, interactive tools to analyze these ideas.)
1. Ocean Rig UDW
ORIG is a pure play that allows one to invest in the deepwater water drilling market as it derives all of its revenue from that particular niche sector. 75% of its rigs are contracted into 2015, thus ensuring some kind of cash flow stability over the next three years. It has six high-spec UDW rigs on the water and three newbuilds scheduled for delivery in 2013. Of its six UDW rigs, it has two semi-submersibles that can drill up to 30,000 feet and four drillships that can drill up to 40,000 feet. Daily rates of all six ships are at least US$450,000, and up to US$675,000.
Furthermore, in August 2012, two of the newbuilds have already been contracted at daily rates of around US$640,000. However, a potential investor might be concerned that its assets are pledged as collateral to loans that are beginning to mature from September 2013 onward. For example, its two semi-submersibles Eirik Raude and Leiv Eiriksson are pledged to a US$1.04 billion revolver that is maturing in 2013.
2. Pacific Drilling (NAS: PACD)
Pacific Drilling derives 100% of its revenue from deepwater drilling. As such, it is one of the only two pure-play UDW drillers on the market. It has a fleet of six UDW drillships, with four delivered and two newbuilds to be delivered by 2013. It has the youngest fleet in the industry. Similar to Ocean Rig, it’s poised to profit from the upturn in deepwater daily rates and a lack of near-term supply of such expertise. The contract backlog for Pacific Drilling is at around US$2.2 billion and consists contracts ranging from one to five years. Two of the rigs operate in Nigeria, one in Brazil and another in the Gulf of Mexico.
One of the concerns about the company is that it has a fairly small fleet and has all its exposure to the deepwater drilling market. Should crude oil prices turn south for a considerable amount of time, the company might run into trouble.
3. Atwood Oceanics (NYS: ATW)
ATW is an international offshore drilling contracted founded in 1968. It currently derives 83% of its revenue from deepwater drilling and has eight rigs on the water, with five semi-submersibles and three jackups. It also has five newbuilds that are ready for delivery by 2014. Given its smaller size compared to the other players in the field, roughly 75% of its revenue is generated from its three largest customers: CVX Australia, Sarawak Shell, and Kosmos Energy Ghana.
The company is poised to take advantage of the upturn in the industry with most of its rigs contracted for a number of years. Its earliest rig repricing will come in December 2012, and this will allow it to have a chance of renewing the contract at a higher daily rate. Furthermore, the company has pretty low leverage compared to its peers with its debt to capital ratio at 26%, far lower than the industry average of around 35%.
4. SeaDrill Limited (NAS: SDRL)
Seadrill derives 66% of its revenue from deepwater drilling in FY2011 and has a mix of deepwater floaters, high-spec Jackups, and newbuilds. A huge advantage in investing in Seadrill is its aggressive dividend yield, which is currently at 9%. Its fleet consists of 66 offshore rigs, with 19 of them being newbuilds. It also has stakes in other offshore drilling companies such as Archer Limited (40%), SapuraKencana (6%), Varia Perdana (49%), Asia Offshore Drilling (34%), and Sevan Drilling ASA (29%). Its EBITDA margin and operating margin over the last two years has also been above those of its peers at 53% and 41%, respectively. However, similar to Ocean Rig, Seadrill has a tremendous amount of debt with its debt to capital ratio over 60%, while its peers are averaging around 35%. While in a rising daily rate environment Seadrill will do well with its leverage, it will suffer if and when the industry suffers a slowdown.
5. Noble Corp. (NYS: NE)
Noble Corp is a leading player in the offshore drilling industry with an existing fleet of close to 70 rigs. The fleet consists of nine drillships, 16 semi-submersibles and 43 jackups. In FY2011, it derived 61% of its revenue from deepwater drilling and will be a benefactor from the uptrend in daily rates of ultra deepwater drilling rigs.
In terms of geographical reach, Noble Corp is everywhere. It has 19 rigs in the Middle East, 12 rigs in Mexico, 10 rigs in Brazil, 10 rigs in the Gulf of Mexico, nine rigs in the North Sea, two rigs in the Mediterranean, one in Alaska, and five in other regions.
6. Transocean (NYS: RIG)
Transocean currently derives 59% of its revenue from the deepwater drilling sector. Unfortunately for the company, it was involved in the Macondo oil spill in the Gulf of Mexico in 2010. As a result, there is a lot of uncertainty surrounding the company. However, Transocean is definitely a force to be reckoned with in the offshore drilling market. It has the largest fleet of offshore rigs, with 130 rigs on water and five newbuilds. Furthermore, it has a large cash pile of close to US$4.0 billion and generates close to US$2.0 billion in cash from operations every year. This makes it a prime target to renew and upgrade its existing fleet of UDW rigs to take advantage of the latest uptrend in daily rates. Unfortunately, the Macondo event and its ensuing troubles will probably keep its share price depressed for the foreseeable future.
- South Korea: Samsung Yard Bags $ 600 Mln UDW Drillship Order (mb50.wordpress.com)
- Ultra Deepwater Drilling Poised to Take Advantage of Supply Demand Imbalance (fool.com)
- South Korea: Samsung Yard Bags $ 600 Mln UDW Drillship Order (appliedagrotech.net)
- Seadrill is Keeping the Lights on at Samsung Heavy with Seventh, and Eighth, New Drillship Order (gcaptain.com)
The unit was built to operate in ultra-deepwaters to water depths of up to 10,000 feet and to drill wells depths of up to 40,000 feet. It will be able to operate in the Brazilian pre-salt area.
The Amaralina Star incorporates the highest technological standards and will contribute to expanding and diversifying QGOG’s expertise in ultra-deepwater drilling. QGOG differentiates itself through deploying cutting-edge technology and a specialized and well-trained workforce.
“Operating the Amaralina Star, a state of the art ultra-deepwater rig, is a key milestone for the Company, as it will be the first drillship we will operate, expanding our know-how in the area of offshore operations”, said QGOG President Leduvy Gouvea.
The Amaralina Star was built by the Samsung Heavy Industries shipyard, located in South Korea. The shipyard is also currently building the Laguna Star drillship, which belongs to QGOG Constellation and will be operated by QGOG.
The two units have been chartered to Petrobras under a six-year contract, with options to renew for six additional years. Drilling services will be provided by QGOG.
- QGOG Announces Naming of Two New Drillships (South Korea) (worldmaritimenews.com)
- Sembcorp Secures Drillships Order from Sete Brasil (worldmaritimenews.com)
- Petrobras to Charter and Operate Nine Drillships (Brazil) (worldmaritimenews.com)
- Rolls Royce Thrusters Chosen For New Deep Water Drillships (gcaptain.com)