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Seadrill boosted by $4 billion drilling contract
July 25, 2012 / 6:55 AM / 5 years ago

Seadrill boosted by $4 billion drilling contract

OSLO (Reuters) - Norwegian offshore oil rig operator Seadrill (SDRL.OL) has won a deal potentially worth $4 billion for three of its drillships in the Gulf of Mexico and says it also expects to cash in further on a booming exploration market.

The deal, one of the biggest in the global rig industry, could herald further rig orders as the global oil industry is struggling to find enough equipment to meet its surging production demand, the firm added.

The Oslo-listed rig company, which operates and leases a 46-strong fleet of drillships and rigs, has been on an aggressive rig spending spree in recent years, awaiting delivery of nearly 20 new ships and rigs as it aims to keep up with fast-paced developments in oil exploration.

“We are fairly comfortable in our view that there are not enough rigs to cover the oil companies’ needs in the coming three years,” Tor Olav Troeim, a top aide to Seadrill’s controlling shareholder John “Big Wolf” Fredriksen, said on Wednesday.

Global oil firms have been on an exploration spree, taking advantage of lucrative offshore finds in frontier areas like Brazil, East Africa and the Arctic, and the boom is creating a shortage for equipment.

As only a handful of shipyards can produce the highly-technical drilling rigs, drilling firms have scrambled to secure newbuild contracts and most have tied down their capacity for years to come.

Nevertheless, Fredriksen, an iconic figure in the global shipping business, has consistently been able to secure yard capacity in recent years and now has one of the largest order books.

“We are not afraid to order more,” he said, adding that most rig players have weak finances and are wary to place orders for new rigs. “That means that this situation will last much longer than most are counting on.”

At 7:35 a.m. EDT (1135 GMT), Seadrill shares were up 4.4 percent to a record 242.9 crowns, the top gainers among Oslo blue chip companies, outperforming the Oslo benchmark index .OSEBX which was up 0.7 percent.

Seadrill shares have risen 25 percent over the past year, outperforming a 25 percent fall in the S&P oil and gas drilling sub-industry index .GSPOILD and a 31 percent fall by top rival Transocean (RIG.N).

The deal with an unnamed major oil company announced on Wednesday involves the drillships West Auriga and West Vela, currently under construction, and a third currently in operation to be named later, Seadrill said.

The combined three-rig package involves 19 rig years, indicating a day rate of $570,000. The start-up of operations for the newbuilds are scheduled for September and December 2013.

“These are rig contracts that fully pay for these assets and then some,” Troeim said.

Seadrill, the world’s largest rig operator by market capitalization had 46 offshore drilling units in operation during the first quarter and has ordered several more ultra-deepwater rigs.

“You rarely see an operator taking in three rigs on such long contracts, so this is definitely positive,” said Danske Markets analyst Endre Storloekken.

The company, which operates in 15 countries on five continents, said earlier this year it expected day rates for ultra-deepwater rigs to rise above $600,000, and that the market was seeing rates up to $750,000 plus per day.

Troeim said Seadrill could have won a much higher rate had the contracts been shorter.

“When you get contracts as long as these you are likely to agree to a small discount. So this doesn’t change the rate range outlook,” Storloekken said.

“You have to remember that operating costs are fairly low in the Gulf of Mexico, so these contracts are amazing,” said Frank Harestad, analyst at Pareto.

Editing by Mark Potter and Mike Nesbit

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