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Transocean to sell 38 shallow-water rigs for $1.05 billion to shift focus to deepwater

BY Alison Sider
 
HOUSTON -- Deepwater drilling company Transocean has agreed to sell 38 shallow-water drilling rigs to Shelf Drilling for $1.05 billion, the company said. The sale is part of Transocean' s strategy to focus on the higher end of the offshore drilling market. The move comes as Transocean faces a potentially costly settlement related to the Deepwater Horizon disaster.

"This agreement marks an important milestone in our asset strategy to increase our focus on high specification floaters and jackups, improving our long term competitiveness," said Transocean Chief Executive Steven L. Newman. The company also said in filings with the Securities and Exchange Commission (SEC) that it plans to put seven more standard jackup rigs up for sale this month.

Jackup rigs stand on extendable legs affixed to the sea floor. The ones being sold to Shelf Drilling are older most came into use during the 1970s and 1980s and drill in water no deeper than 400 ft, according to the news release. Going forward, the company will focus on building more specialized and more profitable equipment that can drill at greater depths, including floating units that can drill deeper than 10,000 ft.

Transocean said monday it is in talks with a "major integrated oil company" to build four drillships specially built vessels than can drill in ultra-deep water and move quickly from location to location. The company said it expects to spend $3 billion on those ships, which would each be contracted for 10 years, according to the filing. Transocean announced monday it issued senior notes to help fund the project, but also said in its SEC filing it was discussing the possibility of a joint venture with its customer.

Transocean will take a loss on the sale announced. The company noted in the filing the total book value of the rigs sold was $1.4 billion and said it might also lose money providing transitional services to Shelf Drilling as part of the sale agreement. Analysts were pleased with the sale and said it would help Transocean generate cash it might need to cover its liabilities from the April 2010 Deepwater Horizon explosion and oil spill, but said the price was disappointing.

Transocean is a "relatively aggressive seller into a market with no buyers," Raymond James analyst Collin Gerry said. "It would have been nice to see a little bit more than a billion." Mr. Gerry said he thought a valuation closer to $1.5 billion to $2 billion would have been on target.

Tudor, Pickering, Holt. analysts wrote in a note monday morning it was "good to see" the company selling nonessential assets and generating cash it may need to cover potential liability in the Deepwater Horizon disaster of 2010. But they added the terms of the deal, including Transocean' s agreement to finance $195 million of the sale, indicate there weren' t many buyers available.

Mr. Newman, Transocean' s CEO, said last week the company aims to keep to keep between $3 and $4 billion in cash available for "uncertainties," including Deepwater Horizon costs. The company had $3.96 billion in cash on its balance sheet at the end of the second quarter and has taken a $2 billion contingent loss to cover its potential liability in the Deepwater Horizon disaster.

James West, an analyst with Barclays, said he believed the sale was part of a long term asset divestiture strategy unrelated to the company' s potential deepwater horizon liability. He said the deal was done earlier than expected with a price high enough to put Transocean ahead of its goal to sell $500 million to $1 billion in low end rigs this year. Shelf Drilling, a newly formed company, is a partnership among Castle Harlan, Lime Rock and CHAMP Private Equity.

Dow Jones Newswires

09/11/2012

 

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