SeaDrill Sets $600M Drillship Order

Zacks

Hamilton, Bermuda-based drilling firm SeaDrill Limited (SDRL) has inked a turnkey contract to build an ultra-deepwater drill ship at Samsung Heavy Industries’ yard in South Korea, thereby increasing its order book to 19 units.

The contract is valued at $600 million comprising project management, drilling and handling tools, spares, capitalized interest and operations preparations. Delivery of the unit is scheduled for the fourth quarter of 2014.

SeaDrill added that the latest drillship will be of equivalent design as the existing six drillships being built at Samsung. The unit will have a hook load capability of 1,250 tons, capable of working at water depths of up to 12,000 feet. The units will be equipped with a seven-ram blowout preventer (:BOP) stack and with storing and handling capacity for a second BOP.

In addition, Seadrill has agreed on a fixed-price option to construct another drillship at the yard. Its delivery is expected to be in the first quarter of 2015. Seadrill, the world's largest driller by market capitalization, is busy taking advantage of low shipyard costs and a boom in offshore oil and gas exploration.

With ultra-deepwater availability in 2013 almost tight, operators have shifted their attention to the 2014 rig availability. The ultra-deepwater market is showing significant growth opportunities that should drive the company’s earnings in the long term.

Hence, SeaDrill, like other offshore contract drilling service providers Ensco Plc (ESV) or Diamond Offshore Drilling Inc. (DO) aims to benefit from the current strong demand scenario and intends to utilize the units in the Gulf of Mexico, Brazil and West and East Africa.

The company currently has 19 units on order that include 7 drillships, 2 harsh-environment semisubmersibles, 5 tender rigs and 5 jackups. Its current order backlog of more than $20 billion will see a huge boost in the near future.

However, SeaDrill’s financial and operational performances face a number of headwinds, including changes in exploration and production spending pattern, commodity price fluctuation, geopolitical risk, regional spending trends, competition, the emergence of new technology and changes in economic conditions.

The company retains a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months.

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