Seadrill Pounces on Weak Shipbuilding Industry, Orders 4 More Drillships

West Auriga, image: Seadrill

Seadrill has announced today that it has signed contracts to build four new ultra-deepwater drillships from South Korean yards, DSME and Samsung Heavy Industries with expected deliveries in the second half of 2015.  Each yard will build two rigs at a project cost at or below USD $600 million.

Seadrill notes that they have also received fixed priced options for delivery of two further units for delivery in the first half 2016. 

The drillships will have a hook load capability of 1,250 tons and a water depth capacity of up to 12,000 feet. In addition, these units will be outfitted with seven ram BOP configuration with storing and handling capacity for a second BOP.   For two of the drillships, Seadrill has received options to include equipment which makes the units prepared for 20,000 psi BOP systems.

Seadrill’s construction program now totals 22 units, including 9 drillships, 2 harsh environment semi-submersibles, 11 high specification jack-ups and fixed priced options for two ultra-deepwater units.

The offshore drilling market has absorbed approximately 261 new units since 2005,” notes Seadrill in an emailed statement. “The utilization of the ultra deepwater fleet has been 100% since Seadrill was established in 2005. In the same period offshore production has been estimated to be marginally down. This illustrates in very simple terms the increased complexity of the development of new oil and gas reserves.  Ultra deepwater production is estimated to increase from around 1 million barrels per day today to 5 million barrels per day over the next 6 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.”

Seadrill plans to finance these new orders 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. Longer term, the additional drilling units are likely to increase Seadrill’s dividend capacity.

Seadrill believes that the economic and administrative benefits of organic growth are far superior to large corporate acquisitions. The decision to move ahead with these four newbuilds is taken after a careful consideration of Seadrill’s financing capacity, and is partly a reflection of the increased financial flexibility created by the sale of their tender rig fleet to Sapura Kencana. Seadrill’s Board has during the last year also seen significant improvement in the company’s borrowing capacity, a trend which is supported by strong improvement in operating results as well as increased credibility in the ECA market, the bond market as well as lower margins from commercial banks.

John Fredriksen, Chairman of Seadrill Limited, says: “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.

Through this latest newbuild order Seadrill remains uniquely positioned as a high growth – high dividend stock.”

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