Hercules Offshore, Inc. announced that it has signed a five year drilling contract with Maersk Oil North Sea UK Limited for a newbuild jack-up rig to be owned and operated by Hercules Offshore.
Total contract value is approximately $420 million, which includes approximately $9 million of mobilization fees. Contract commencement is expected in mid-2016.
Hercules Offshore has also signed a rig construction contract with Jurong Shipyard Pte Ltd (“JSL”) in Singapore. The rig is based on the Friede & Goldman JU-2000E design, with enhancements that will provide for greater load-bearing capabilities and operational flexibility. These enhancements are based on collaborative efforts between Maersk Oil, JSL and Hercules Offshore.
In addition, this High Specification, Harsh Environment (HSHE) rig will feature a 400 foot water depth rating, 30,000 foot drilling capacity, two million pounds of static hook load, 75 foot cantilever reach, off-line pipe handling capability, 15,000 psi blowout preventer systems, high pressure/high temperature rating and accommodations capacity for up to 150 personnel. The shipyard cost of the rig is estimated at approximately $236 million. Including project management, spares, commissioning and other costs, total delivery cost is estimated at approximately $270 million. Hercules Offshore initially pays 10% of the shipyard cost, or approximately $24 million to JSL, followed by a second 10% payment one year after the initial payment. The final 80% of the shipyard payment is due upon delivery of the rig, estimated in April 2016.
John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, “The contract with Maersk Oil is a great achievement for our organization and marks another significant milestone in the development of our Company. Strategically, this opportunity further demonstrates our worldwide capabilities and expands our operational footprint to the North Sea with a leading operator in the region. The rig will operate in the Central North Sea to develop Maersk Oil’s high profile Culzean Field. The decision by Maersk Oil to contract a newbuild rig with specific enhancements was driven by the unique challenges to develop this field. Given these enhancements, we expect demand for this rig in the North Sea to extend well beyond the initial five year fixed contract term, with two (2) one-year unpriced options.
“This investment is also consistent with our commitment to renew our rig fleet with high specification assets that are expected to garner strong long term demand. We have structured the investment to balance between maximizing returns and minimizing investment risk. Cash on hand will be used to fund the initial shipyard payments and we plan to secure project financing to fund the remaining payment as the rig nears delivery.”