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Insight

Seadrill's Ultra-Deepwater Rig Starts Work for PEMEX

Wed, 01/25/2012 - 14:58

In April 2011, Seadrill signed a contract with Pemex through its subsidiary, Sea Dragon de México, to provide its West Pegasus ultra-deepwater semi-submersible drilling rig for a five-year period. The terms of the deal provide for a fixed operating day rate for the first two years of the contract, and subsequently fixed according to market conditions. Assuming a constant day rate over the five-year term, and excluding the mobilization fee, the contract is valued at approximately US$850 million, corresponding to a US$465,750 day rate; this amount is comparable to the company’s existing ultra deepwater semi-submersible rigs’ day rates in other parts of the world.

Seadrill is the world’s second-largest offshore driller when measured by enterprise value. The company has operations in 50 different countries spanning four continents. The company primarily operates off the coasts of Norway, Brazil and some Asian countries, and has very little exposure to the Gulf of Mexico, unlike its competitor Transocean, the drilling company involved in the ill-fated Macondo well. Seadrill has been going from strength to strength in recent months, and analysts predict that the company’s revenues will grow by 6.4% in 2011 to US$4.6 billion. The company has a debt-to-equity ratio of 154.7; this is reflective of the need to take on debt in order to build the company’s assets. The company seems to have had few problems financing its latest infrastructure acquisitions.

Ultra-deepwater rigs command the highest day rates in the offshore drilling industry by a rather large margin: the cash break-even cost per day for each rig including cost, tax and interest expenses and scheduled debt instalments is around US$385,000. Seadrill acquired two rigs, Seadragon I (later renamed West Pegasus) and Seadragon II, from an unnamed bank in January 2011, in a deal valued at US$1.2 billion. Seadrill carried out the acquisition by raising new bank debt, with the rigs themselves serving as security. This debt has a seven-year tenor and a 13-year repayment profile.

The amount Seadrill paid includes project management for the remaining construction period, drilling and handling tools, spares, operations preparations and capitalized interest. Construction of the West Pegasus took place at the Jurong Shipyard in Singapore, and finished in January 2011. West Pegasus began its journey to Mexico on April 1st 2011 after a period of testing and training, and after the final elements of the deal between the two companies were decided. Operations commenced in the third quarter of 2011.

The West Pegasus is based on the Moss Maritime CS50 MkII design, and is a high-specification, new generation drilling unit. It is equipped with NOV drilling equipment and has capacity to drill in water depths exceeding 3,000m, and total vertical drilling capacity of over 10,000m. It features a single derrick with a dual pipe handling and offline stand building capabilities for increased efficiency.

The West Pegasus contract is advantageous for both parties. Seadrill’s bid for deepwater drilling services was the most-cost efficient and comprehensive, and therefore the most desirable, Pemex said. For Seadrill’s part, in addition to finding a customer to pay the day rate for a full five years only a few weeks after the semi-submersible came out of the shipyard, the deal also allows the company to diversify its revenue streams. Seadrill has not focused on the Gulf of Mexico in the past, and this first foray into the region will hopefully serve as a foot in the door and the start of a fruitful and long-lasting relationship with Pemex. 

Pemex expects to spend around US$1 billion on the exploration of deepwater assets located in the Perdido folded belt in 2012, drilling three wells in the area during the course of the year. Pemex was due to start drilling these wells in late 2011, but was delayed by the late arrival of the Bicentenario deepwater semi-submersible rig. It is believed that the West Pegasus rig will also be used at Perdido this year.

The Perdido folded belt is located adjacent to the US- Mexican maritime border. Any cross-border reservoirs have yet to be discovered, but in February 2012 Mexico and the US signed the Transboundary Hydrocarbons Agreement that put in place guidelines in case any shared reservoirs are discovered. The agreement also put in place a framework for conducting joint inspections of infrastructure on both sides of the border.