Bil­lion­aire Fredrik­sen bets $2b on rigs af­ter BP spill

The Pak Banker - - Company& -

NEW YORK: Bil­lion­aire John Fredrik­sen's Sead­rill Ltd. in­vested $2 bil­lion in the past two months on new oil rigs, lead­ing a jump in or­ders as safety con­cerns af­ter BP Plc's Gulf of Mex­ico dis­as­ter spur de­mand for newer plat­forms. Sead­rill, owner of the sec­ond-largest fleet of deep­wa­ter rigs, and oth­ers such as DryShips Inc. have or­dered 20 deep­wa­ter and shal­low-wa­ter rigs since BP's Ma­condo well was plugged in July, rais­ing global or­ders by 22 per­cent, ac­cord­ing to data from San­ford Bern­stein & Co. Deep­wa­ter rig rates have sta­bi­lized af­ter a 30 per­cent plunge, and may re­turn to pre-re­ces­sion records within three years, con­sul­tant ODS-Petro­data said.

"No oil com­pany wants to be the new BP," said Kim An­dre Uggedal, an an­a­lyst at Agilis Se­cu­ri­ties in Oslo. "The new or­der cy­cle is partly driven by Ma­condo, in­creased de­mand and fa­vor­ing of newer as­sets."

Off­shore ex­plo­ration from Brazil to Green­land is gen­er­at­ing de­mand for rigs af­ter oil prices more than dou­bled since the end of 2008. Yards have cut prices and find­ing fi­nanc­ing has eased af­ter the global credit cri­sis ebbed. Newer plat­forms now fetch dou­ble the rate of older ones, ODS-Petro­data said.

"The en­tire drilling mar­ket is im­prov­ing," Alf Thork­ild­sen, Sead­rill's chief ex­ec­u­tive of­fi­cer, said in tele­phone in­ter­view on Nov. 19. "There might be a big­ger risk at­tached to be­ing first out, but there's also big­ger po­ten­tial."

Ber­muda-based Sead­rill this month or­dered two ul­tra deep-wa­ter drill­ships, which can reach 12,000 feet (3,700 me­ters), at $600 mil­lion each for de­liv­ery start­ing in 2013. It has op­tions for two more. The com­pany also or­dered four jack-up rigs for $780 mil­lion since Oc­to­ber and op­tions for six more. Sead­rill Chair­man Fredrik­sen, who also heads the world's biggest op­er­a­tor of su­per­tankers, has a 28 per­cent hold­ing in the com­pany.

Sead­rill shares have gained 66 per­cent to 192.9 kro­ner in Oslo since reach­ing a year-to­date low on July 1. The strength of rig de­mand means the shares have fur­ther to go, said In­golf Gilles­dal, head of eq­uity re­search at Nordea Se­cu­ri­ties, who has a tar­get price of 207 kro­ner.

"There's still up­side po­ten­tial as the longterm out­look is very, very good," Gilles­dal said on the phone from Oslo. "There'll be new de­mand for deep­wa­ter rigs in 2012, so it's good that we're start­ing to get new ones built now."

Other or­ders in­clude two jack-ups by At­wood Ocean­ics Inc. as well as from Eura­sia Drilling Co., ac­cord­ing to Bern­stein. DryShips took out an op­tion last week for four drill­ships at $600 mil­lion each. Transocean Ltd., the largest rig com­pany and owner of the Deep­wa­ter Hori­zon rig that blew up and sank at Ma­condo, this month agreed to buy a jack-up rig for $195 mil­lion for de­liv­ery in the fourth quar­ter of 2011. Maersk Drilling, a unit of ship­ping com­pany A.P. Moeller Maersk A/S, plans to or­der a rig ev­ery six months over the next year and a half, CEO Claus Hem­mingsen said this month.

Petroleo Brasileiro SA, Brazil's state-owned com­pany, has leased 20 for­eign rigs to start in the next two years as it seeks to pump oil from its so-called pre-salt fields, the biggest oil finds in the Amer­i­cas since the 1970s. The U.S. has lifted the post-spill mora­to­rium, al­low­ing the restart of deep­wa­ter drilling there next year.

"Deep­wa­ter and ul­tra deep­wa­ter is where the re­sources are and that's where the acreage is ex­cit­ing," said Ja­son Ken­ney, head of oil re­search at ING Com­mer­cial Bank­ing in Ed­in­burgh. "They want safe, se­cure, tech­ni­cally ca­pa­ble rigs and the more of them the bet­ter. There's not enough of them at the moment."

The risk for drillers is de­mand won't rise enough to ab­sorb the rigs or­dered. In to­tal, there are 43 jack-up rigs, which op­er­ate in shal­lower wa­ters, and 60 float­ing rigs sched­uled for de­liv­ery by 2013, Bern­stein said in a Nov. 19 re­port. Sixty-five per­cent of the jack-ups are be­ing built on spec­u­la­tion, with­out a con­tract, Bern­stein said. "It seems to be more sup­plier driven than de­mand driven, be­cause the rigs aren't be­ing backed by con­tracts," Scott Gru­ber, an an­a­lyst at Bern­stein in New York, said by phone.

Still, rates on ul­tra deep-wa­ter rigs may reach the pre-fi­nan­cial cri­sis level of $600,000 to $650,000 a day within three years from about $450,000 now, said Gavin Stra­chan, an Aberdeen-based con­sul­tant at ODS-Petro­data.

"The mar­ket is re­cov­er­ing a bit bet­ter than what we orig­i­nally thought," he said.

Newer jack-ups now fetch about $130,000 a day, down from $220,000, while rates on older jack-ups have plunged 62 per­cent to $60,000 a day, ac­cord­ing to ODS-Petro­data.

The in­dus­try's trend to­ward con­sol­i­da­tion will con­tinue as com­pa­nies use cash flow from im­proved earn­ings to ac­quire smaller ri­vals, an­a­lysts said. Noble Corp. ear­lier this year agreed to buy FDR Hold­ings Ltd. for about $2.16 bil­lion, while Rowan Cos. in July took con­trol of Nor­way's Skeie Drilling & Pro­duc­tion ASA. Sead­rill bought Scor­pion Off­shore Ltd. ear­lier this year. -Bloomberg

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