Norwegian oilfield service firm, Seadrill Ltd (SDRL) announced that it has finalized the drilling contracts for the jackup units – West Oberon, West Intrepid, West Defender and West Courageous. The contracts pertain to a Heads of Agreement with the Mexican state-owned petroleum company Pemex that Seadrill had mentioned in its third quarter 2013 earnings release.
Seadrill is awaiting approval from Pemex for its fifth jackup unit, West Titania, previously known as Prospector 3. The deal is expected to close in second quarter 2014. With the long-term nature of the contracts (each of the five units being contracted for about 6 years), Seadrill expects revenues of over $1.8 billion.
The company also announced that it has formed a 50-50 joint venture (JV) with the private investment firm, Fintech Advisory Inc (Fintech). The JV, SeaMex Ltd., will be the owner of these jackup rigs that are working for Pemex. The JV will also look for additional opportunities in Mexico and other countries in Latin America. The sale of half of its interest in the rigs to Fintech would generate about $488 million for Seadrill. This gain would be reflected in the company’s results in the first half of 2014.
Management believes that Seadrill received this opportunity from Pemex as a result of the operational success of West Pegasus, the ultra-deepwater semi-submersible, in Mexico.
Seadrill renders services related to offshore drilling activities, which include exploration, completion and maintenance of offshore wells; production and well maintenance; and well services to customers worldwide.
Hamilton, Bermuda-based Seadrill currently holds a Zacks Rank #4 (Sell), implying that it will underperform the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players from the industry such as Seadrill Partners LLC (SDLP), Helmerich & Payne, Inc. (HP) and New Source Energy Partners L.P. (NSLP). All these stocks currently sport a Zacks Rank #1 (Strong Buy).
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