Fredriksen Bets $2 Billion on Rigs After BP Spill
Billionaire John Fredriksen’s Seadrill Ltd. invested $2 billion in the past two months on 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 been easier 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.”
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, with options for six more, and bought a high specification jack-up from Petrojack IV Pte. Ltd. today. Seadrill Chairman Fredriksen, who also heads the world’s biggest operator of supertankers, has a 28 percent stake in the company.
The company today reported a third-quarter profit growth of 8.3 percent to $352 million, beating analyst estimates of $346.5 million, and forecast “good growth and solid profitability” in the fourth quarter.
Seadrill shares have gained 62 percent to 188 kroner in Oslo since reaching a year-to-date 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 long-term 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.
Built on Speculation
“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-deepwater 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.
Gruber at Bernstein said takeover targets include Pride International Inc. and Vantage Drilling Co., smaller, new entrants and rigs being built without full financing.
Crude will need to rise to more than $100 a barrel to support a gain in rig rates to pre-crisis levels, Bernstein’s Gruber said.
Crude is forecast to reach $102.13 a barrel by 2013 according to a weighted average of 12 analysts surveyed by Bloomberg. Oil traded at about $83.67 a barrel on Nov. 26 in New York, up from a low of about $34 a barrel in December 2008.
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