Seadrill orders seventh drillship, takes option for eighth

Written by Nick Blenkey

WestSEPTEMBER 24, 2012 — John Fredriksen’s Seadrill has entered into a turnkey contract to build a new ultra-deepwater drillship at Korea’s Samsung Heavy Industries.

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 what Seadrill describes as “tail-heavy payment terms” payable upon delivery, which is scheduled within the fourth quarter 2014.

In addition, Seadrill has agreed a fixed price option to build a further drillship at the shipyard, 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. These units will be outfitted with a seven ram configuration of the blowout preventer (BOP) stack and with storing and handling capacity for a second BOP.

Seadrill says that shipyard costs are currently at very attractive levels and  says that “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 seven drillships, two harsh environment semi-submersibles, five tender rigs and five 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 a recent US $1 billion bond offering.

Chairman 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 newbuildings 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.

“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 newbuilding 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.”

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