Chinese driller signs ‘innovative’ rig deal in Nigeria

Following the oil price collapse in mid-2014, offshore drillers have found themselves in a difficult place. The drilling market is flooded with rigs ordered at the times when oil prices were high, and demand for rigs has fallen as oil majors have cut their exploration budgets, waiting for the oil prices to rise.

Pressed by the lack of demand for drilling services, there have been talks of some drillers even going as far as chartering out rigs at below-breakeven day rates, to keep them busy. However, there is now a new development in the offshore drilling space.

Namely, Sirius Petroleum on Wednesday said it has hired a jack-up drilling rig from China’s COSL Drilling, to be used for a drilling campaign offshore Nigeria.

Announcing the deal, Sirius said it had entered into a “key vendor financed offshore drilling contract” with COSL, whereby COSL would take payment for the charter at a later date.

Sirius explained how this “innovative financing solution” works:

“Under the terms of the Vendor Finance Contract, COSL will extend delayed invoice and payment terms to Sirius which will have the effect, dependent on successful drilling, of deferring a significant portion of the cost of the rig until after the Company commences the production of hydrocarbons, but is otherwise on normal industry terms. The contract envisages a drilling program on the Ororo Field and could be expanded to include other potential offshore assets.”

Offshore Energy Today has reached out to Sirius and COSL, seeking further clarification of the explanation above, because, as is, one might understand that there is a possibility that COSL wouldn’t be paid at all if production from the field, for some reason, doesn’t start.

As for the unnamed rig, Sirius will use it to drill at the Ororo project in shallow waters offshore Nigeria. Drilling is expected to start in the first half 2017.

Bobo Kuti, CEO of Sirius, said: “We are delighted to have secured this highly competitive, vendor financed rig contract with COSL, one of the world’s leading oilfield service companies. This innovative financing solution affirms our belief in the quality of the Ororo field and our confidence in achieving first hydrocarbons in H1 2017. We look forward to working with COSL and our other project partners to commence the development of our interests in Nigeria.”

Chris Shea, Group Director of Marketing of COSL, said: “We are excited to work in collaboration with Sirius Petroleum to enable the Company to reach first oil. It is important for oil service providers and operators to pool their resources and strengths making operations more efficient and cost effective thereby creating value for both parties.”

According to Sirius Petroleum, independent petroleum consultants, Rockflow Resources , recently produced a Competent Persons Report on the Ororo field attributing 2C contingent resources, net to Sirius, of 11.5mmboe. Rockflow calculated a NPV10 valuation of over $49m, net to Sirius, at a flat, real Brent price of $50/bbl and flat, real gas price of $3.50/mcf.

“The announcement of the COSL Vendor Finance Contract brings the Company an important step closer to first hydrocarbons and the unlocking of this valuable resource,” Sirius said.

Offshore Energy Today Staff


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