Transocean said to be eyeing Sembmarine's West Rigel rig

Singapore

TALK about New York-listed Transocean looking to acquire the US$568 million West Rigel has buoyed hopes over Sembcorp Marine emerging unscathed from the insolvency risk confronting the rig's originally intended owner, Seadrill.

A UOB Kay Hian research note on Thursday flagged market talk that Transocean may acquire the West Rigel rig that is currently held by Sembmarine under a standstill agreement with Seadrill's 70.4 per cent-owned subsidiary, North Atlantic Drilling Limited.

North Atlantic commissioned Sembmarine to build the semisub at a contracted value of US$568 million in 2012.

The brokerage argued that Transocean's acquisition, if materialised, will deliver a "huge positive" on Sembmarine, considering this will "free up capital locked up" in the West Rigel project and bolster the yard group's cash flows.

The standstill agreement now in force puts West Rigel under the care of a 77:23 joint venture between Sembmarine and North Atlantic.

Seadrill had indicated only 20 per cent of the agreed US$568 million contract value was paid up to the yard group, with the remaining 80 per cent due only on the delivery of the rig.

Any upside for Sembmarine from Transocean's said acquisition plan for West Rigel remains subject to "negotiation between the parties".

The Business Times also understands Transocean is clearly seeking for bargains in the ultra deep-water space after having struck a deal to offload its 15 jack-up rigs to Borr Drilling.

Transocean is understood to have offered to buy two semi-submersible rigs, built in 2001-2002, from financially distressed Ocean Rig at steep discounts from their build prices.

So for Sembmarine to divest West Rigel "at no losses", it is down to North Atlantic agreeing to a haircut, as UOB Kay Hian suggested.

Singapore's two top rig-builders, Sembmarine and Keppel Offshore & Marine, have between them dozens of rigs yet to be delivered from their order books.

In late March, new startup Borr Drilling struck an agreement to buy 15 jack-ups from Transocean, including five that were being built at Keppel O&M. The deal priced each of the five jack-ups at US$216 million, compared to US$219 million per rig contracted between Transocean and Keppel O&M in 2013.

IHS Markit's APAC head for fabrication and yards, Ang Dingli, told BT these recent asset acquisitions are part of a consolidation of the offshore drilling industry.

Rigs are seen changing hands mostly at bargain prices among new and existing entities.

Transocean, for instance, has decided to divest all its jack-up rigs in the deal with Borr Drilling, a newly established outfit headed by Tor Olav Troim, who struck out on his own after breaking away from his co-founder of Seadrill, John Fredriksen.

Mr Fredriksen had reportedly set up Northern Drilling, which will possibly start with owning a pair of semi-submersible rigs acquired from South Korea's Hyundai Heavy Industries at discounted prices. The two rigs will be managed by Seadrill.

Mr Ang noted that these transactions typically involved newbuild rigs that have yet to be delivered from Singapore and South Korea. Rigs from yards in these countries are expected to be favoured by those looking to tap a window of opportunity during this downturn.

Sembmarine declined comment, stating it would not comment on market speculation. Sembmarine's shares closed at S$1.855, down 1 cent.