John Fredriksen’s Northern Drilling has decided to take early delivery of its newbuild semi-submersible rig West Mira as a result of new options exercised under the rig’s contract with Wintershall.
To remind, Wintershall last June awarded a firm six-well contract to the West Mira rig for operations at Wintershall’s Nova field. The contract was expected to start in March 2020.
However, the rig owner said on Friday that Wintershall in October and November exercised two front-end options under the West Mira contract bringing expected start date forward to the fourth quarter of 2019.
Wintershall has additional front-end options outstanding bringing potential start date forward to third quarter 2019 should all options be exercised.
As a result of Wintershall exercising front end options and the positive prospects of further options to potentially be exercised, Northern Drilling has elected to take early delivery of West Mira from the shipyard. Expected delivery of West Mira is now set to early December 2018.
According to Northern, West Mira will be the world’s first modern drilling rig equipped with a low emission hybrid power plant with batteries. Integration of batteries in power supply and distribution system on a drilling rig is expected to reduce fuel consumption, CO2 and NOx emissions significantly.
Northern Drilling bought the West Mira rig from Hyundai Heavy Industries after Seadrill had canceled the contract due to the yard’s inability to deliver the rig on time. Northern also bought the Bollsta Dolphin semi-submersible from Hyundai last December. The original client for the rig, Fred. Olsen Energy, canceled the order in 2015 as a result of the delays in delivery date.
Signs of improvement in UDW market
Northern Drilling also said on Friday that, despite recent short-term volatility in the oil price, the ultra-deepwater (UDW) market continues to show clear signs of improvements.
The company further said that increased tender activity continues to be a leading indicator pointing to increased activity. Drilling contractors are also becoming more restrictive contracting out premium rigs at or close to operational cost. This has resulted in a number of selective, but highly supportive data-points for tier 1 benign UDW rigs securing contracts with an expected margin of more than $50,000 per day above daily operating cost. Utilization for tier 1 benign UDW rigs is currently estimated to be 82% compared to the trough in November 2017 of 63%.
Since the company’s entrance into the UDW market in May 2018, the trend with operators preferring premium units has intensified with an annualized growth in utilization of more than 40% year over year. Based on the observed utilization and day rate trajectory, the company is increasingly comfortable on the outlook for its UDW rigs but will continue to utilize its flexible delivery schedule to maximize expected future contract economics.
The harsh environment market has seen several contracts for premium HE rigs awarded year to date at clean rates approaching $ 300,000 on average. Several of the contracts awarded are for start-up in late 2019 and 2020 reducing the availability of premium HE rigs.
Northern noted that the West Bollsta is today believed to be one of the very few available rigs to meet the technical requirements from certain operators for start-up in the next 12 to 18 months.
“The company is ideally positioned with West Bollsta but will continue to weigh potential contract economics against delivery timing of said rig,” Northern said.
On November 29, 2018, the board appointed Scott McReaken as the Chief Executive Officer with effect from December 3, 2018. McReaken will succeed Gunnar Winther Eliassen who will continue to support the company through Seatankers Consultancy Services. McReaken has been employed by Seadrill Group of Companies since 2012 where he served as Chief Executive Officer and Director of Sevan Drilling and Chief Financial Officer of North Atlantic Drilling.
With the beginning of West Mira for operations in Norway, Northern Drilling said it will enter into a new phase of business. The board believes McReaken brings the experience and leadership necessary to successfully oversee this important transformation of the company.
The company will continue to primarily remain an asset platform and is not targeting further expansion of in-house operational capabilities. All operational capabilities and requirements will continue to be sourced through management contracts maintaining Northern Drilling’s platform.
The company will continue to execute on its strategy of pursuing attractive asset acquisitions.