Seadrill eyeing Singapore rigbuilders for drillship contracts

New orders from the offshore drilling giant are likely to be awarded to local shipyards, says DBS.

Seadrill has said that its order of two new drillships at $600 million per unit is merely the "first step" and DBS notes that discussions are ongoing with other Singapore rigbuilders to expand its drilling fleet in the coming years.

Here's more from DBS:

Seadrill’s new order for 2 drillships is just the “first step”. Seadrill has ordered two ultra-deepwater drillships for delivery in 2Q/3Q 2014 at US $600m per unit. It also retains a fixed-price option for a third unit. Seadrill added that this batch of orders is merely the “first step” in its plan to order more rigs, with its chairman, John Fredriksen, commenting that its commitment to ultra-deepwater and tender rig newbuilds will be further increased in the weeks to come. Seadrill is one of the world’s largest drilling contractors, with the 2nd largest fleet of ultra-deepwater rigs, and the largest and most modern fleet of jackup and tender rigs

Adding to newbuilds under construction. This batch of orders adds to the three drillships already under construction at Samsung Heavy Industries. It also has another 9 newbuild shallow water rigs (1x CJ-70 jackup rig, 4x benign environment jackups, 3x tender rigs, 1x semi-tender rig; exclude newbuildings owned via associates).

Seadrill bullish on offshore drilling market; primary focus on ultra-deepwater and tender rigs. On the back of high oil prices and significant exploration successes in both new and established deepwater regions, there has been a ramp up in drilling programmes across the world, leading to a surge in long term demand for tender rigs and modern ultra-deepwater drilling rigs. Growth in demand is particularly evident in the US, East and West Africa regions. Further, with the increased focus on safety post Macondo, this will support demand for higher specification rigs, as well as increased drilling time per well. Indeed, in view of the above, the company believes that there will be a potential shortfall in rig capacity, in particular, for ultra-deepwater and tender rigs

Newbuild rig economics remain favourable. The company also believes that the economics of rig newbuilds remain favourable - global yard prices remain attractive, while day rates for drilling rigs have been rising. For instance, we note that 3 of 4 ultra-deepwater contracts recently secured by Seadrill were at day rates >US$500k/day; while its tender rigs fetched US $170-235k/day, the highest levels achieved post-GFC.

Singapore rigbuilders are likely key beneficiaries. Seadrill is currently in discussions with several yards to further add to its drilling fleet capacity in 2014 and beyond. According to Upstream, these yards are predominantly based in Asia, with some Brazilian yards as potential. We believe Singapore rigbuilders are well positioned to secure the potential rig orders from Seadrill, given their proven track records in ultra-deepwater semisubmersible newbuildings as well as established relationships with the latter.