May 6, 2008

Transocean gets drilling contract for another newbuild drillship

Transocean Inc. (NYSE:RIG) today announced that one of its subsidiaries has been awarded a five-year drilling contract for another enhanced Enterprise-class design newbuild drillship. The contract has options for various extensions--and if the client opts to take it to 10 years, it can also elect to have the operating dayrate for the second five years fluctuate based on crude oil prices.

A shipyard contract has been executed for construction of the ship at the Okpo, South Korea, shipyard of Daewoo Shipbuilding and Marine Engineering Co., Ltd. where four of Transocean's previously announced enhanced Enterprise-class drillships are currently being constructed.

Total capital costs for the drillship are estimated to be approximately $730 million, excluding capitalized interest.

The drillship will feature:

Transocean's patented dual-activity drilling technology, allowing for parallel drilling operations designed to save time and money in deepwater well construction;
A variable deckload of 20,000 metric tons; and
The capability of drilling in up to 10,000 feet of water depth, upgradeable to 12,000 feet of water depth and 40,000 feet of total drilling depth with additional equipment.

In the past three years, Transocean has announced nine newbuild ultra-deepwater drilling rigs, including five enhanced Enterprise-class drillships.

The five-year drilling contract is expected to commence during the fourth quarter of 2010, following shipyard construction, sea trials, mobilization and customer acceptance. The contract commencement date is contingent on vendor performance and other factors. The term of the drilling contract may be extended to seven or 10 years at the client's election up to one week after mobilization.

The estimated contract revenues which could be generated over the five-year, seven-year and 10-year contract terms are approximately $1.01 billion, $1.35 billion, and $1.85 billion (assuming the client elects to keep the operating dayrate fixed for the full 10 years and does not terminate the contract early), respectively.

If the client elects to extend the contract to 10 years, then the client can also elect to have the operating dayrate for the second five years fluctuate based on crude oil prices. In that case, the operating dayrate for the second five years (i) will not be adjusted if crude oil is at $75 per barrel, will be adjusted upward on a straightline basis if crude oil is between $75 per barrel and $100 per barrel, with a maximum positive adjustment of approximately 10% if crude oil is at or above $100 per barrel, and (iii) will be adjusted downward on a straightline basis if crude oil is between $75 per barrel and $50 per barrel, with a maximum negative adjustment of approximately 10% if crude oil is at or below $50 per barrel.