Seadrill, spurred on by its continued optimism for the ongoing tightness of the global offshore drilling market, is to splash out more than US $2 billion on four new ultra-deepwater drillships to be built at two separate yards in South Korea for delivery in 2015, as well as receiving fixed priced options for two additional units.

The Bermuda-based company said it had entered into turnkey contracts to build one pair of drillships at the DSME yard, and the other pair at Samsung’s yard also in South Korea. The project value price is estimated by Seadrill to be less than $600 million per unit (including project management, drilling and handling tools, spares, capitalized interest and operations preparations).

Delivery of the units is scheduled for the second half of 2015. Seadrill has, in addition, also received fixed priced options for the delivery of two further units for delivery in the first half of 2016, it added.

Discussing the current market, the company said the offshore drilling sector had absorbed approximately 261 new units since 2005, and the utilisation of the ultra-deep fleet has been 100% since the company was established in that same year.

In the same period offshore production has been estimated to be marginally down. Seadrill stated: “This illustrates in very simple terms the increased complexity of the development of new oil and gas reserves. Seadrill has spent significant time and effort analysing the future demand of the ultra-deepwater drilling market. Ultra-deepwater production is estimated to increase from around 1 MMb/d today to 5 MMb/d over the next six years.

“In order to reach this target significant new development drilling capacity will have to be added. At the same time, the industry faces a situation where approximately 49% of the current floater fleet is older than 20 years. We have already seen a strong trend where fourth and fifth generation vessels are incapable of meeting oil companies’ new requirement for safety margin and deck load capacity, and are being replaced with newer units.”

The Board of Seadrill is of the opinion, it continued, that the current order book for 2014 - 2016 of approximately 39 units will be fully absorbed, and utilisation will continue at very high levels with solid dayrates for the modern equipment.

Seadrill currently has an order backlog of approximately $19 billion. Based on current discussions, the company says it is confident that in the coming months it will add to this as its open 2014 capacity is likely to be fixed at attractive dayrate levels.

The company also said that it believes that the economic and administrative benefits of organic growth are far superior to large corporate acquisitions.

The Board had also during the last year seen significant improvement in the company’s borrowing capacity. It commented that it expects the four newbuilds to be fully financed through a combination of available cash and structured debt facilities, and that no additional equity or reduction in dividend capacity will be needed to support and complete the project.

Commenting on the wider market activity, Seadrill said that the industry’s ordering of deep water drilling units for delivery in 2015 has been “lower than expected”, with only seven uncontracted newbuilds available prior to its latest order.

“It is unlikely that our competitors can add any significant additional capacity before the second part of 2016. We are comfortable that based on our current asset composition, quality of operation and capital structure we will be able to keep our target of delivering better returns for our shareholders than any of our industry peers. The Board continues to be excited about the strong demand for drilling and the overall tightness in the supply demand situation,” it concluded.

John Fredriksen, Chairman of Seadrill Ltd., stated: “We have been able to use the current weakness in the shipbuilding industry to order drilling units at very attractive price levels. At the same time we are securing future growth by continuing to build a homogenous fleet with all the operational benefits which come from fleet standardization.”

The latest quartet of newbuild drillships will have a hook load capability of 1,250 tons and a water depth capacity of up to 3,658 m (12,000 ft), targeting operations in areas such as the Gulf of Mexico, Brazil and West and East Africa. Also, 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. The units include design and equipment features that will make them particularly attractive for development drilling, added Seadrill.

For two of the drillships, it has received options to include equipment that makes the units prepared for 20K BOP systems, a requirement that will become increasingly common for newbuilds.