Analysis: Stena Weathers Economic Downturn

Stena Drilling is an independent drilling contractor and a wholly owned subsidiary of Stena AB, which is based in Sweden.

Stena's offshore drilling business expanded in the 1990s fueled by the company's acquisition of Houlder Marine Drilling in 1989 and Ben Line Steamers / Atlantic Drilling in 1996. Through these acquisitions, Stena Offshore gained drilling units and experienced staff.

Today, Stena Drilling has expanded its fleet through new construction and conversions, and enhanced them with some of the most leading-edge drilling technologies and innovations. Its rigs operate in the North Sea, US GOM, Southeast Asia, the Mediterranean, Caribbean, South America, Australia, and North and West Africa.

Utilization and Outlook

Stena Drilling's fleet is made up of three midwater semisubmersibles, one ultradeepwater semisubmersible, and four ultradeepwater drillships. Currently, all seven of Stena's available rigs are under contract, with the eighth rig still under construction.

Looking forward, Stena's three currently complete ultradeepwater drillships, the Stena Carron, Stena DrillMAX and Stena Forth, are all under long-term contract that will keep them working until at least the start of 2013.

On the other hand, Stena's three midwater floaters, the Stena Clyde, Stena Don and Stena Spey are all set to come off contract by the first quarter of 2011. And the company's only ultradeepwater semisub rig is set to come off contract in the third quarter of 2011.

Over the course of the last 18 months, utilization for midwater floaters has softened significantly, holding in the 70% range since the start of 2009. The market has experienced an uptick in the last several months and is set to move past 80% in June. However, a significant portion of the midwater fleet is scheduled to come off contract in the second half of 2010 and early 2011, with more than 40% of the fleet set to be off contract by February 2011. That means that the Stena midwater semisubs will face a fairly competitive landscape as they begin seeking new work over the coming months. However, with oil prices having stabilized for most of the last 12 months in $70-80 range, utilization in this segment seems likely to stabilize near 80%, providing significant opportunities for Stena's fleet to find work.

The Stena Fleet

The Stena Clyde semisubmersible is currently in the Keppel Shipyard in Singapore undergoing modifications, which include a special periodic survey, main engine replacement, and a mooring winch system upgrade. The Stena Clyde will return to work for Apache off Australia in July 2010.

Stena Semisubs

The Stena Don is also undergoing modification. The Keppel Verolme Shipyard is repairing and maintaining the 3,700-dwt (4,078 ton) dynamically positioned semisubmersible. The contract involves installation of four blisters and two sponsons, and overhaul of the rig's thrusters. When complete in June 2010, the semisubmersible will work for Cairn Energy off Greenland.

The remaining two semisubmersibles in the fleet include the Stena Spey, which has a contract with TAQA Bratani to drill the Tern North Field off the UK through February 2011, and the ultradeepwater Stena Tay, which is drilling off Nigeria for Total through July 2011.

Stena's drillships are all newbuilds. The contractor ordered its first drillship in September 2005. Samsung Heavy Industries constructed the Stena DrillMAX ultra-deepwater drillship at its Koje Shipyard in South Korea at a cost of approximately $600 million.

The Stena DrillMAX is a dynamically-positioned rig capable of working in water depths of up to 10,000 ft and in harsh environments. The rig was delivered in Q4 2007 and went to work for Repsol off Rio de Janeiro in early 2008. Currently the drillship is drilling for Repsol off Brazil through December 2013.

The Samsung South Korea Shipyard completed the Stena Carron drillship in August 2008. The rig's first contract was with Chevron in the North Sea. Today the ultra-deepwater drillship is under contract with Chevron to drill offshore Canada through July 2010.

The Samsung South Korea Shipyard also constructed the Stena Forth, which left the yard in Q3 2009. Its first contract was for Hess Corp. in the Mediterranean. Today the ultra-deepwater drillship is drilling for Hess in the US GOM Green Canyon area through May 2010.

Currently under construction at the Samsung yard in South Korea, Stena ordered its Stena DrillMAX ICE in May 2008. The vessel will be “ice classed” with additional hull thickness. The cost of the rig is estimated to be about $1.15 billion. Stena DrillMAX ICE will be dynamically positioned with six propellers a total displacement of 97,000 tons. The drillship, which is currently not contracted, is expected to leave the yard in late 2011.

Weathering the Storm

Stena AB's latest published operational results from 2008 indicate that its 2008 numbers were up from 2007 despite the global financial crisis, turbulent credit market, and dramatic slowdown of the economy. By the end of 2008, the Group's total cash liquidity, financial assets, and un-utilized credit facilities equaled SEK 10.6 billion ($1.46 billion). The total net debt/ capital ratio was 54%.

Offshore drilling accounted for SEK 6,087 million ($840 million) in revenues and SEK 1,504 million ($208 million) in income, compared to the Group's total revenue of SEK 26,394 million ($3,352 million) and a net income of SEK 26,472 million ($3,362 million).

According to Stena AB, a major strength for the company during this time of financial unrest was Stena Ltd's financing of its newbuilding projects.

The company's DrillMAX ICE is being financed through a combination of export credits and bank loans, as opposed to project financing and financial leasing for the first three drillships built.