Norwegian shipping magnate scoops up bargains in the offshore market

2017-09-18 09:00

As the offshore drilling market slumped, drilling platforms became idle, and the postponement of new drilling platform deliveries provided acquisition opportunities for well-funded new enterprises. Taking advantage of the lower asset values, Borr Drilling and Northern Drilling are building their respective fleets to profit from future market recovery.

Borr Drilling and Northern Drilling are both newly established drilling contractors, and both are connected to Norwegian shipping magnate John Fredriksen. Borr Drilling was established by John Fredriksen's former associates, while Northern Drilling was established by John Fredriksen's Seatankers.

Currently, Borr Drilling's fleet includes 17 high-specification jack-up drilling rigs, including 5 newbuilds under construction. These jack-up drilling rigs were acquired at low prices from Hercules Offshore and Transocean, with an average acquisition price of only US$107 million per rig.

In just 9 months, Borr Drilling has become one of the top 5 operators of high-end jack-up drilling rigs globally. However, Borr Drilling's newly appointed CEO, Simon Johnson, recently stated that Borr Drilling is not satisfied with the current fleet size and will further expand its fleet in the future. He revealed that Borr Drilling is in preliminary negotiations with different drilling contractors and expects to achieve results.

Although currently only having 2 charter contracts, Johnson pointed out that Borr Drilling has no debt, and the break-even price per drilling rig is about 50% lower than that of other competitors; this means that Borr Drilling can profit at low day rates, while other competitors can only choose to idle drilling rigs, thus giving Borr Drilling a dominant position in price competition.

Borr Drilling recently listed on the Oslo Stock Exchange with a market capitalization exceeding US$1 billion, almost 10 times that of Seadrill. In contrast, the heavily indebted Seadrill recently filed for Chapter 11 bankruptcy protection to complete its financial restructuring.

Johnson said that Borr Drilling aims to provide operators with a new charter contract model together with its partner Schlumberger, featuring performance incentives based on drilling efficiency, etc., to differentiate itself from other competitors. Schlumberger currently holds a 20% stake in Borr Drilling.

However, in terms of low-price acquisitions, Borr Drilling may face competition from Northern Drilling. Northern Drilling also hopes to profit from market recovery by acquiring low-priced drilling platforms. Northern Drilling was established by Seatankers, with 50% of its shares owned by John Fredriksen's investment company Greenwich Holdings.

In March this year, Northern Drilling acquired Seadrill's previously Hyundai Heavy Industries cancelled semi-submersible drilling rig "West Mira" for US$365 million, and also signed a contingent contract to purchase another semi-submersible drilling rig, "Bollsta Dolphin," for US$400 million. Both semi-submersible drilling rigs will be delivered in 2019.

Seatankers director Gunnar Eliassen said that Northern Drilling could actually acquire both under-construction drilling platforms for the price of one, as the prices of such new semi-submersible drilling platforms are at a historical low, and Northern Drilling is currently actively exploring the next transaction.

He revealed that Northern Drilling's main acquisition targets are idle harsh-environment floating drilling rigs, and there are already 5 acquisition candidates. However, Northern Drilling is also considering acquiring idle drilling vessels and jack-up drilling rigs.

Since the "West Mira" transaction, Northern Drilling has screened 75 different drilling platforms and selected 24 potential transactions, with prices ranging from US$100 million to US$2 billion. However, Eliassen said that although asset prices are expected to continue to decline, these transactions are consistently overpriced.

Northern Drilling aims to maintain a simple and lean operating system, outsourcing drilling platform management to third-party companies rather than having a large organizational structure. Currently, Northern Drilling has no employees.

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