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Virtually every rig contractor in the world is focused on getting a slice of the booming multi-billion dollar offshore drilling market that has developed thanks to Brazil’s massive pre-salt bonanza.
Seadrill Limited is a case in point. The rig market’s second-largest ultra-deepwater contractor in terms of fleet numbers (17 ultra-deep units) is implementing a major long-term expansion of its activities and presence in Brazil. The Bermuda-based contractor recently announced plans to establish and accelerate its plans for a Master Limited Partnership (MLP) in the country, while already in the process of preparing the way for the eventual formation of a separate listed company – ‘Seabras’ – for its Brazilian deepwater operations by the end of this year.
Seadrill’s Board says it “sees the establishment of a MLP as an important step forward in order to lower future financing costs and to increase dividend capacity. Seabras has completed the necessary corporate restructuring and received the required consents from Petrobras”.
It continued: “Given the large potential upside of the MLP structure, the Board has decided to accelerate this project ahead of the Seabras listing. It is however the Board’s clear intention to complete both projects as well as the listing of NADL (North Atlantic Drilling) before the year end.”
Seadrill’s Board said it was evaluating “several opportunities” to increase Seabras activities prior to the listing. A separate organization to support such wider operations in Brazil is being established which “further highlights the benefit of somewhat postponing the planned listing of Seabras”.
The contractor, which has one of the rig market’s most modern deepwater and ultra-deepwater fleets, anticipates that the new MLP structure will involve part ownership of 4-6 rigs fixed on long term contracts. Seadrill will initially seek to build the MLP with a combination of deepwater, tender and possible jack-up assets in order to reduce the risk for investors and to increase Seadrill’s flexibility.
The Seabras entity, once it is established, will be a Brazilian-listed company majority-owned by Seadrill, with the initial fleet to include at least three ultra-deepwater rigs. Seadrill announced its intention to form the separately-listed company earlier this year, with the aim of making it a national player in the largest single ultra-deepwater market in the world. It also believes a separately-listed Brazilian entity would give it better access to the country’s capital market and subsidized state loans, as well as helping operators to meet crucial local content criteria.
It had originally pencilled in a target date for a Seabras listing in February this year but later pushed that date back to April before the latest decision to further delay the initial public offering on the Sao Paulo stock exchange while it first implements the MLP plan to help lower future financing costs.
The company’s faith in the continued expansion of the ultra-deepwater rig market in Brazil and elsewhere remains strong. It has already this year forecast that global rig rates will keep moving upwards over the course of 2012-2013, with dayrates for ultra-deepwater units to rise to at least US $600,000. The driller now has five ultra-deepwater drillships under construction and expects to benefit from a booming exploration market.
It recently ordered the latest two of these from Samsung Heavy Industries in South Korea, saying it had in the last year seen a surge in long-term demand for modern ultra-deepwater drilling rigs and tender rigs. The growth in demand had been particularly strong in the US, East and West Africa regions, it said, while in addition to oil price and exploration successes, the industry’s focus on safety following the Macondo accident, has supported demand for higher specification rigs as well as leading to increased drilling time per well.
Based on these developments and further analysis, Seadrill said it is highly likely that lack of sufficient rig availability in the deepwater market will become a key bottleneck until significant new drilling capacity is added. If oil prices remain at present levels, this tight supply demand balance will force oil companies to postpone field developments with negative impact on the net present value of these discoveries.
Seadrill said when ordering its latest pair of drillships earlier this year that it was of the opinion that the present and foreseeable developments represent a “unique investment opportunity” and that it was in discussions with several shipyards to further increase the company’s rig availability in 2014 and thereafter.
As a first step towards this, it entered into turnkey contracts with Samsung to build the two new units. Their construction is scheduled for completion in the second and third quarters of 2014 at a cost of up to $600 million per rig. Seadrill has also a fixed price option to order an additional drillship for delivery in 2014. These dynamic positioning drillships will have a hook load capability of 1,250 tons and a water depth capacity of up to 3,660 m (12,000 ft) targeting operations in areas such as Brazil, the Gulf of Mexico, West and East Africa. In addition, these units will be outfitted with seven ram configuration of the Blow out Preventer (BOP) stack and with storing and handling capacity for a second BOP.
The five new dual derrick drillships being built are scheduled for delivery in the period 2013-2014, while it also has four existing units coming off current contracts in the same period.
Seadrill currently has a fleet of 62 units, including 21 drillships and semisubmersibles, 21 jack-ups and 20 tender rigs. Seven of those units (3 semis, 3 jack-ups and 1 tender) are at present working offshore Brazil.