North Atlantic Drilling (NADL) and Ship Finance International Limited (Ship Finance) announced Monday an agreement to a combined sale and leaseback arrangement whereby Ship Finance will acquire the harsh environment jackup drilling rig West Linus from a subsidiary of NADL. The West Linus (492' ILC) is currently under construction at Jurong Shipyard in Singapore with scheduled delivery in December 2013.
The total acquisition cost will be $600 million and the drilling rig will be chartered back to NADL on a bareboat contract for a period in excess of 15 years. NADL has been granted four purchase options, the first of which will occur after five years and the last at the end of the charter period. Ship Finance will also have an option to sell the rig back to NADL at the end of the charter period. NADL has sub-chartered the rig to ConocoPhillips Skandinavia AS for a period of five years with 2, two-year extension options. Expected delivery to ConocoPhillips is April 2014 and the rig will be at a mobilization rate from the delivery from the shipyard until commencement of the sub-charter.
NADL has received $195 million of the purchase price in June 2013, and the remaining $405 million will be received on delivery from the shipyard in December 2013. The debt financed portion of the total price will be $475 million in total, of which $70 million will be funded now, and $405 million at delivery from the shipyard.
The bareboat charter rate paid over the first five years (excluding the four-month mobilization period) will be approximately $220,000 per day and the average rate for the remaining 10-year lease period will be approximately $115,000 per day. The purchase option price after five years is around $380 million.
Due to the features in the chartering agreement, we expect the rig to continue to be recognized as an asset on NADL's balance sheet based on US GAAP. Consequently, NADL does not expect to record a gain from the sale of the West Linus.
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