SapuraKencana in RM8.9bil rig deal

SapuraKencana Petroleum Bhd has entered into a non-binding agreement to acquire Seadrill Ltd's tender rig business for an enterprise value of US$2.9bil or RM8.9bil to be satisfied by a mix of shares and cash, a move that will see the former becoming a leading global player in the tender rigs and semi-tender rigs market.

According to a joint statement by the companies, Seadrill will receive a minimum of US$350mil in new shares of SapuraKencana that will double up Seadrill's stake in the company to 13% from the current 6.4%.

The remaining consideration will be funded by SapuraKencana through a mix of external borrowings, a seller's note of up to US$187mil, internally generated funds and equity.

Seadrill will further have the right to nominate two members to the SapuraKencana board of directors (including one alternate). Seadrill's chairman John Fredriksen is expected to be one of those members.

The total enterprise value includes US$363mil in remaining capital expenditure linked to the newbuilds programme and all debts in the tender rig business including existing bank facilities of about US$800mil as of Dec 31, 2012.

The enlarged tender rig business under SapuraKencana will comprise 16 tender rigs in operation (including the KM1 rig currently owned by SapuraKencana), five of which are already 51%-owned and managed through its existing joint venture with Seadrill in Varia Perdana Sdn Bhd and Tioman Drilling Company Sdn Bhd and an additional five units currently under construction (newbuilds).

SapuraKencana will also be offered the right to be the manager for three further tender rigs which are not part of the transaction.

The operating rigs and newbuilds are all currently contracted under long-term fixed price contracts with companies such as Chevron, Shell, PTTEP, and Petronas Carigali.

The total order backlog amounts to US$1.55bil as of end-October where the majority of the operating rigs are currently deployed in South-East Asian waters.

Of the 15 operating rigs, nine are barges and six are semi-tenders which are capable of operating in water depths of up to 6,500 ft. The organisation will continue to operate from the existing premises in Singapore.

One of the main objectives of the transaction is to develop a leading player in the East Asian market.

SapuraKencana president and group chief executive officer Datuk Seri Shahril Shamsuddin (pic) said Seadrill had been a great strategic partner for SapuraKencana for many years and this proposed transaction underpinned this commitment and significantly strengthened SapuraKencana's business profile and ability to deliver long-term value for their shareholders.

“The combination of Seadrill's deep operational expertise, world-class customer access and ongoing transfer of knowledge is expected to propel SapuraKencana's competitive position and enable it to take advantage of the growth dynamics within the industry,” he said, adding that after this transaction, total bumiputra stake in the company remained at about 40%.

Shahril said this deal provided a golden opportunity for SapuraKencana, a Malaysian company, to command almost 51% market share in the tender rigs and semi-tender rigs segment.

“Furthermore, our fleet of tender rigs are quite young, at an average of eight years,” he said.

From the integration, SapuraKencana will also have more exposure to a higher margin drilling segment, expand its reach across the value chain, provide cross-selling opportunities and complement its presence in key markets globally.

The agreement also stipulated that the parties would seek to grow their joint-venture activities in Brazil where they were awarded three pipe-laying support vessel contracts by Petrobras in 2011.

The parties also agree to establish a joint venture between Seadrill's 40%-owned subsidiary Archer Ltd and SapuraKencana where the scope of such venture will focus on developing and expanding Archer's wireline services in the East Asian markets.

Seadrill chairman, president and director John Fredriksen believed in the potential of SapuraKencana's expansion, as well as its capability to mesh its existing services with Seadrill's tender rig business and crystallise value.

“We are very supportive of the integration of our tender rig business with that of our long-term partner, SapuraKencana.”