Seadrill Orders New Samsung Deepwater Drillships for $1.2B

Seadrill has in the last year seen a surge in long-term demand for tender rigs and modern ultra-deepwater drilling rigs. The increased demand for ultra-deepwater rigs has been driven by high oil prices and significant exploration successes in both new as well as established deepwater regions leading to a ramp-up in drilling programs. The growth in rig demand has been particularly strong in the US, East and West Africa regions. In addition to oil price and exploration successes, the industry's focus on safety following the Macondo accident, has supported demand for higher specification rigs as well as leading to increased drilling time per well.

Based on these developments and analysis of the rig market, Seadrill has concluded that it is highly likely that lack of sufficient rig availability in the deepwater market will become a key bottleneck until significant new drilling capacity is added. If oil prices remain at present levels, this tight supply demand balance will force oil companies to postpone field developments with negative impact on the net present value of these discoveries.

Seadrill is of the opinion that the present and foreseeable developments represent a unique investment opportunity. In order to benefit from this opportunity, Seadrill is currently in discussions with several shipyards to further increase the Company's rig availability in 2014 and thereafter. As a first step, Seadrill has entered into turnkey contracts to build two new ultra-deepwater drillships at Samsung in South Korea. The construction of the drillships is scheduled for completion in the second and third quarter 2014. Total project price per drillship is estimated to be under $600 million, which includes a turnkey contract with the yard, project management, drilling and handling tools, spares, capitalized interest and operations preparations. Seadrill has also a fixed price option to order an additional drillship for delivery in 2014.

The drillships are of the same design as the three previous dual derrick drillships that Seadrill ordered at Samsung late 2010 and early 2011, with increased water depth, technical capabilities and accommodation capacities. These dynamic positioning drillships 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 as well as West and East Africa. In addition, these units will be outfitted with seven ram configuration of the Blow out Preventer (BOP) stack and with storing and handling capacity for a second BOP.

Chairman of Seadrill John Fredriksen said, "We are pleased to see the success of the strategy that the Company was based upon in 2005. Through significant investments in modern high specification equipment and our focus on quality operations, we have been able to differentiate this Company from its competitors and create a basis for a strong sustainable cash flow and a solid return to our shareholders. Our long relationship with Samsung has given us access to a proven rig design and favourable delivery slots. In combination with attractive global yard prices, this has created an opportunity to continue to organically build Seadrill with very compelling economics. Seadrill will have five new ultra-deepwater rigs scheduled for delivery in the period 2013 - 2014 and four existing units coming off current contracts in the same period. There has already been specific discussions regarding chartering of part of this capacity. We believe the open ultra-deepwater exposure position will serve Seadrill well and create a unique exposure to one of the fastest growing and most profitable energy businesses in the world. We also believe that this open exposure can be used to further strengthen our relationship with fast growing and dynamic oil companies. The recent increase in daily rates for drilling rigs will generate excess cash that can be used for a balanced combination of organic growth and a strong long-term dividend distribution. It is likely that Seadrill's commitment to tender and ultra-deepwater new buildings will be further increased in the weeks to come."


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Produced Water separations equipment will be needed.

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