Market Welcomes Norway Rig Deal Flurry

OSLO, Dec 08, 2006 (Dow Jones Newswires)

The flurry of substantial rig agreements penned this week on the Norwegian continental shelf has been welcomed by industry parties as an indication of the good health of the future rig market and oil and gas exploration plans.

"We are optimistic about the outlook for the market, we believe very strongly in it," said Jim Datland, vice president for investor relations at Seadrill (OIL.OS) which Friday announced an $806 million agreement with Shell (RDSA) for the deepwater drillship West Navigator on the Ormen Lange field.

Aker Drilling's (AKD.OS) chief executive Geir Atle Sjoberg was similarly upbeat, calling its roughly $885 million contract Friday with Statoil (STO) "encouraging."

Global rig markets are forecast to remain extremely tight for the next couple of years, as oil majors and start-ups alike entrench in oil and gas exploration and production to get the most from high oil prices.

At $60 a barrel, company profits have soared to all-time highs but the downside has been fierce competition for rigs, oil services companies and personnel.

Oslo-listed drill company Seadrill is viewed as one of the most attractive drilling stocks globally, but its substantial new-build program, to take advantage of soaring demand, is seen as a potential risk, analysts at Morgan Stanley (MS) said in a research note. The company itself is unfazed, oozing confidence in its own program and Friday's agreement.

"We have eight new builds under construction, six semi-submersibles and two drill ships," Datland said. "If we look at deepwater, we're the company with the greatest exposure in 2008-2009," he added.

"This deal (with Shell) is a good starting point," he added. A few more of the kind of deal seen today would significantly reduce the company's risk.

Meanwhile, Statoil's contract with Aker Drilling was one of two it entered into Friday. The second was with Odfjell Invest AS for around $895 million to secure semi-submersible Deepsea Rig 1 currently under construction in South Korea, from early in 2009.

Statoil expects to use the two rigs to maximize oil and gas production from the Tampen area of the North Sea, and the Halten-Nordland area of the Norwegian Sea, Statoil spokesman Jone Stangeland said.

Aker Drilling's Sjoberg said companies now go out to tender for rigs earlier than previously to ensure they can get capacity. "What's also encouraging from our point of view is that the duration of contracts is also increasing," he said, although giant Statoil played down the length of its contracts saying, "it's the way it's been done in the past."

Statoil's agreements with the two drilling firms are for between three and ten years, with the possibility of extension options.

Shell's contract with Seadrill, on behalf of Ormen Lange operator Norsk Hydro, has a duration of four years and nine months, and is set to start Oct. 1 next year.

Aker also entered into an agreement earlier this week with exploration company Aker Exploration for the second of its two new-build rigs currently in process. The two rigs are designed for drilling in ultra-deep waters under harsh weather conditions in frigid climates, the company said.

Sjoberg reckoned that it is important to have a range of deals in the market. Range is a "reflection of the demand in the market, there are some quite significant programs going ahead, both on exploration, but also in production drilling," Sjoberg said.

"I think there is a big drive from operators and oil companies to try to decrease the time span between discovery to development," he continued.

"Companies have to bear in mind that it's quite complex to develop the field. They need to have the equipment in order, a production plan and also the infrastructure, pipes...and as we keep on moving further out into deeper waters, it's quite challenging," he said.

While the majors and larger oil firms appear to be increasingly well positioned vis-a-vis rig capacity going forward, it is perceived by some in the industry that new, and smaller, oil companies will lose out.

Aker's Sjoberg said: "It is recognized as a challenge in this market for smaller companies to actually get hold of rigs and meet their drilling commitments."

But he added that today's deal with Statoil was part of a fresh wave of new-build rigs, saying; "there is indeed new capacity coming to the market."

"The market is definitely there, that's why we see these construction projects and the entry of capacity to the market. There are quite a few new-build rigs to come," Sjoberg predicted optimistically.

Copyright (c) 2006 Dow Jones & Company, Inc.

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