Seadrill Acquires More Shares in Asia Offshore Drilling

Seadrill Limited reported Monday it has acquired an additional 1,127 shares of Asia Offshore Drilling Limited at $5.04/share (NOK 28.70/share), raising Seadrill's stake in the company to 26.3 million shares, or 65.94 percent of Asia Offshore's total outstanding shares.

The offshore drilling contractor last month launched a mandatory cash offer for the remaining shares of Asia Offshore Drilling after acquiring more than 12 million shares of Asia Offshore Drilling's stock.

The offshore drilling contractor continues to pursue additional growth opportunities beyond its 22-unit newbuild program, including the recent acquisition of the Songa Eclipse (UDW semisub), additional ultra-deepwater orders, and the company's recent tender rig transaction with SapuraKencana.

"We think Seadrill will continue to pursue select cash generating growth opportunities to help further grow the dividend," said Barclays Capital Analyst James C. West in a Nov. 27 research note.

Seadrill reported third quarter 2012 earnings Monday before interest taxes depreciation and amortization of $547 million, lower than Barclay's $632 million estimate. The miss was due primarily to higher-than-expected expenses, with total expenses of $453 million, higher than Barclays' estimate of $416 million forecast. But Barclays continues to view Seadrill as an attractive offshore driller due to the company's strong contract backlog, high quality asset base, attractive dividend yield, capital markets prowess and continued focus on growing its high spec fleet.

"Recent exploration successes are sustaining high rig demand while increasingly complex wells are creating demand for higher specification units, in our opinion," West commented. "Ultra-deepwater day rates remain in the $600K range; however we anticipate upside as availability dwindles. Seadrill has leverage to additional upside through six uncontracted ultra-deepwater units under construction."

Barclays reports that ultra-deepwater day rates have risen from post-Macondo levels of $400K to $450K and mid-2011 levels of $450K to $500K. Seadrill was recently awarded a five-year contract through mid-2020 for the West Mira (UDW semisub) with Husky Oil offshore eastern Canada at a day rate of $590,000.

"We think the near leading edge rate (despite the long project lead-time and contract duration) speaks to the underlying market strength."


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