SEPTEMBER 28, 2012 — First the bad news, then the good from Transocean Ltd. (NYSE : RIG). Yesterday, the offshore drilling giant announced that the federal court in Rio de Janeiro had served it with a preliminary injunction requiring that it cease operations in Brazil within 30 calendar days. Today, Transocean reports that Royal Dutch Shell has awarded it 10-year contracts for four newbuild ultra-deepwater drillships, which is also good news for Korea's Daewoo Shipbuilding and Marine Engineering (DSME) which gets to build the ships.
The Brazilian injunction is part of an ongoing legal saga following an estimated 3,000-barrel leak last November at Chevron's (CVX) Frade field where Transocean operated the rig. Chevron currently has 9 rigs operating offshore Brazil which Petrobras CEO Maria das Gracas Foster says are crucial for meeting production targets. Transocean said yesterday it is "vigorously pursuing the overturn or suspension of the preliminary injunction, including through an appeal to the Superior Court of Justice." It says that "absent relief from the courts," it will have to comply with the preliminary injunction and is "evaluating rig contracts and collaborating with customers to determine appropriate actions with respect to operations."
Meantime, Transocean estimates that the Royal Dutch Shell contract announced today will add $7.6 billion to its revenue backlog, excluding mobilization. The aggregate capital investment for the four newbuild drillships is an estimated $3.0 billion, excluding capitalized interest.
Shipyard delivery for the first drillship is scheduled for mid-2015. The remaining three drillships are expected to be delivered from the shipyard at approximately six-month intervals thereafter. After customer acceptance, the contracts are expected to commence in 2015 and 2016.
All four drillships have advanced capabilities: each is designed to operate in water depths of up to 12,000 feet and drill wells to 40,000 ft. They will feature Transocean's patented dual-activity drilling technology, industry-leading hoisting capacity, a variable deckload capacity of 23,000 metric tons and feature enhanced well completion capabilities. Each will be outfitted with two 15,000 psi blowout preventers (BOPs), which are expected to reduce customer non-productive time between wells. They will be able to accommodate a future upgrade to a 20,000 psi BOP, when it becomes available. The vessels' diesel engines will be configured to comply with Tier III emissions standards.
"These contracts add 40 years of rig work to our revenue backlog, expand and upgrade our ultra-deepwater fleet, improve our fleet mix and provide an opportunity to expand our relationship with an important customer with which we have 40 years of experience in advancing the state of the art in offshore drilling technology," said Steven L. Newman, President and Chief Executive Officer of Transocean Ltd. "We look forward to providing Shell with incremental value through the addition of these seventh-generation, ultra-deepwater drillships."
Peter Sharpe, Shell's Executive Vice President, Wells, said, "Shell continues to develop its deepwater operations and modernize its contracted rig fleet at fair market rates. These state-of-the-art deepwater rigs, on which we are collaborating with Transocean to design, will comply with the highest industry standards for safety, operations and environmental protection for drilling deepwater wells."
Construction on the first drillship is expected to commence during the fourth quarter of 2013.