Maersk and Sevan Report Rig Contract Cancellations

Offshore
1

45 rigs needing work this year and 50 more next! This on top of all the rigs already looking for employment. OUCH…THAT’S GONNA LEAVE A MARK!

[B]Maersk and Sevan Report Rig Contract Cancellations[/B]

By MarEx 2016-03-30

Sevan Drilling and Maersk Drilling both announced contract cancellations for drilling rigs early this week, adding to the growing roster of semi-submersibles and drillships taken off-hire ahead of schedule as E&P firms act to cut costs.

Ultradeepwater drilling firm Sevan announced that it had reached an agreement on March 30 to cancel its contract with Petrobras for the services of the Sevan Driller, retroactive to December 1, 2015. Petrobras had earlier suspended the Driller’s contract as part of negotiations over rates.

The Driller will be redeployed on a 60 to 120 day well intervention contract for Shell in Brazil, adding revenue of about $11 million.

Sevan also said that it had managed to preserve its contract with Petrobras for the rig Sevan Brasil by cutting its dayrate to $250,000, effective retroactive to February 26. The contract is now set to run through July 2018, preserving “$220 million of contracted revenue backlog.”

Separately, on March 29, Maersk Drilling announced the early cancellation of its contract with Chevron affiliate Cabinda Gulf Oil Company for the ultradeepwater semi-submersible Maersk Deliverer. The Deliverer had been on contract with Cabinda since mid-2012.

Maersk Drilling said that it would keep the Deliverer in the region and would continue to look for new work for her.

In a note published in Barrons last week, Credit Suisse analysts forecast that the active floating rig count would drop from about 150 to as little as 110 over the next several years, with drilling activity picking up in 2017-2018 and day rates reviving towards 2019-2020. The bank predicted 45 rigs coming off contract in 2016 and another 50 in 2017, suggesting that the environment is ripe for more scrapping activity - on top of the 80 floaters scrapped or stacked since 2013.

2

and then there is this also today which I guess is good news for SeaDrill provided that their creditors are willing to take a haircut. Obviously, with more debtload that any other major driller, they are particularly vulnerable as this downturn nears the year and a half mark.

[B]Seadrill Said to Hire Help on Debt Talks[/B]

March 30, 2016

By Luca Casiraghi, Dinesh Nair and Steven Church

(Bloomberg) — Seadrill Ltd., the offshore driller with the biggest debtload, hired Houlihan Lokey Inc. and Morgan Stanley to advise it in negotiations on restructuring $11 billion of loans and bonds, two people familiar with the matter said.

Bank lenders to the company formed a committee this month to lead the talks and appointed adviser Lazard Ltd. and law firm White & Case, said the people, who asked not to be identified because the information is private.

Offshore drillers are struggling to repay debt as competition and reduced spending by oil companies hurt profits. Falling demand for rig services is forecast to reduce sales at the world’s largest offshore contractors by 25 percent this year and at least 10 percent in 2017, according to Bloomberg Intelligence analyst Andrew Cosgrove.

Spokesmen at Seadrill, Houlihan Lokey, Lazard, Morgan Stanley and White & Case declined to comment on the appointments.

Seadrill has $2.6 billion of unsecured bonds and $8.4 billion of bank facilities. Almost $3.5 billion of debt is due by the end of next year, according to data compiled by Bloomberg. The company’s $948 million of bonds due September 2017 are quoted at about 45 cents on the dollar, the data show.

Shares Surge

Seadrill’s shares rose as much as 8.4 percent in Oslo on Wednesday, the biggest increase in three weeks, according to data compiled by Bloomberg.

The company, controlled by billionaire John Fredriksen, aims to have a plan agreed with bondholders and banks by the end of June, Chief Executive Officer Per Wullf said in an interview on Feb. 26. Getting to a deal will be complex, in part because Seadrill has more than 40 bank creditors across a dozen syndicates, Wullf said.

The restructuring may include a debt-for-equity swap, Bloomberg Intelligence’s Cosgrove wrote on March 24. Analysts including Janne Kvernland of Nordea Bank AB say the plan may involve the issue of at least $1 billion in new equity.

3

Interesting that the second article doesn’t mention that Lazard was also hired to advise the bankruptcy protection filings of fellow offshore rig contractors Vantage, Hercules, and Paragon. Not saying Seadrill is going that route, but it seems relevant to the story.

4

The banks will refinance. The complication is the number of lenders involved. The last thing they want is to take possesion of a rig.