Transocean to Sell Shallow Water Rigs for $1.05B

Transocean to Sell Shallow Water Rigs for $1.05B

Drilling contractor Transocean will sell 37 jackups and one swamp barge to private equity-backed firm Shelf Drilling International for approximately $1.05 billion.

Transocean will also discontinue operations its seven remaining standard jackups, the company said Monday.

The sale marks "an important milestone in our asset strategy to increase our focus on high-specification floaters and jackups, improving our long-term competitiveness," said Transocean President and Chief Operating Officer Steven L. Newman in a statement.

New had told attendees at the Barclays CEO Energy Power Conference in New York last week that the company was looking divest of its low-specification jackups and floaters and enhance its fleet with high-spec rigs.

The sale price includes approximately $855 million in cash, subject to working capital and other closing adjustments, and $195 million in seller financing in the form of preference shares issued by a Shelf Drilling affiliate.

Transocean also will provide various transition support services to Shelf Drilling for a period subsequent to the closing of the transactions, which is expected to take place in the fourth quarter.

As a result of the sale, Transocean expects its third quarter 2012 results to include a non-cash charge related to impairment of the long-lived assets or goodwill allocable to these assets.

Shelf Drilling is a newly formed company sponsored equally by Castle Harlan, CHAMP Private Equity and Lime Rock Partners. Shelf Drilling will focus exclusively on shallow water drilling, "leveraging decades of complementary industry experience of management, three leading investment firms, and our employees, to provide best in class drilling operations for our customers," said Shelf Drilling President and Chief Executive Officer David Mullen in a statement Monday.

TPH Energy Research reported it was good to see Transocean divesting of non-core assets and cash for potential Macondo liabilities, but the valuation and owner financing indicates there were not many alternative buyers, according to a Sept. 10 analyst note from TPH Energy Research.

"We are not fans of the transaction as the total value to Transocean after working cap and personnel adjustments is about the same as the new floater, but producing around four times more revenue and three times more earnings before interest, taxes, depreciation and amortization," according to a Sept. 10 analyst note from GHS Research.

Transocean also announced Monday the proposed public offering of senior notes of its wholly owned subsidiary Transocean Inc. Net proceeds from the offering will fund all or part of the costs associated with the construction of four newbuild drillships.

The company is in discussions with a major integrated international oil company for the construction of and associated drilling contracts for four ultra-deepwater newbuild drillships. Estimated capital investment for the four newbuilds is $3 billion, excluding capitalized interest.

Transocean estimates each newbuild would be contracted to the customer for a 10-year terms. The contracts, expected to begin in 2015 and 2016 following shipyard construction and mobilization, would contribute an estimated total backlog of $7.6 billion, excluding mobilization.

The newbuilds are expected to be based on the enhanced DSME 12000 design and are expected to feature Transocean's patented dual-activity drilling technology. Each drillship is expected to have capacity to operate in 12,000 feet of water and drill wells up to 40,000 feet deep. Each newbuild would also be equipped with a second blowout preventer system, to reduce customer's non-productive time.

Transocean may also enter into alternative arrangements. These may include a joint venture with the customers that would own the newbuilds, in which the customer would provide a portion of the financing for the drillships and would participate in profits from the newbuilds.

The net proceeds will be used to pay down debt if Transocean does not enter into the drilling contracts, if the rigs are not constructed, or the full amount needed to build the drillships is not raised, the company reported Monday.

Transocean also does not expect any incremental damage to earnings related to a settlement for the Macondo incident over its previously announced $2 billion reserves for Macondo-related claims, the company reported Monday.

Barclays Capital Analyst James C. West views the announcement as positive, as the jackup sale streamlines Transocean's high-spec assets and provides substantial cash. The newbuild orders also solidify a relationship with an unnamed major while adding significant backlog, and the company continues to anticipate Macondo liabilities up to $2 billion.

TPH Energy Research reported it was good to see Transocean divesting non-core assets and cash for potential Macondo liabilities, but the valuation and owner financing indicates there were not many alternative buyers, according to a Sept. 10 analyst note from TPH Energy Research.

"We are not fans of the transaction as the total value to Transocean after working cap and personnel adjustments is about the same as the new floater, but producing around four times more revenue and three times more earnings before interest, taxes, depreciation and amortization," according to a Sept. 10 analyst note from GHS Research.

The roster of shallow water rigs that Transocean is divesting includes:

  • Jackups
    • C.E. Thornton
    • Compact Driller
    • F.G. McClintock
    • Galveston Key
    • GSF Adriatic I
    • GSF Adriatic IX
    • GSF Adriatic V
    • GSF Adriatic VI
    • GSF Adriatic X
    • GSF Baltic
    • GSF High Island II
    • GSF High Island IV
    • GSF High Island IX
    • GSF High Island V
    • GSF High Island VII
    • GSF Key Gibraltar
    • GSF Key Hawaii
    • GSF Key Manhattan
    • GSF Key Singapore
    • GSF Main Pass I
    • GSF Main Pass IV
    • GSF Parameswara
    • GSF Rig 105
    • GSF Rig 124
    • GSF Rig 141
    • Harvey H. Ward
    • J.T. Angel
    • Randolph Yost
    • Ron Tappmeyer
    • Transocean Comet
    • Trident 15
    • Trident 16
    • Trident II
    • Trident IX
    • Trident VIII
    • Trident XII
    • Trident XIV
  • Swamp Barge
    • Hibiscus

WHAT DO YOU THINK?

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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Kev clarke | Sep. 14, 2012
Sounds like a good positive move, as most of those rigs are 1980s junk, & not really suitable in todays market. Also over the years to remain compliant & give the client what they require, the rigs have lost their VDL & therefore have become a problem to keep operational. The future looks good, i hope my company goes the same way.


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