Seadrill is Keeping the Lights on at Samsung Heavy with Seventh, and Eighth, New Drillship Order

Image: Seadrill

With future projections showing increased demand for deepwater rigs, Seadrill announced today that they have signed another US$600 million contract with Samsung Heavy Industries for a new ultra-deepwater drillship as well as agreed to a fixed price option to build an eighth rig at the South Korean yard.

Chairman of Seadrill Limited John Fredriksen commented, “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 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. Also, these units will be outfitted with seven ram configuration of the blowout preventer (BOP) stack and with storing and handling capacity for a second BOP.

Delivery is scheduled for the fourth quarter of 2014 and first quarter 2015 respectively.

Fredriksen continues, “The new ordering has been evaluated up against several M&A and asset proposals but the Board has concluded that organic growth through contracting new buildings 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 new building 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.”

Seadrill’s construction program now totals 19 units, including 7 drillships, 2 harsh environment semi-submersibles, 5 tender rigs and 5 jack ups. In addition Seadrill has fixed priced options for three ultra-deepwater/harsh environment units.

The initial installments for the new drillship will be funded by liquidity from the recent US$1 billion bond offering.

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