Petrobras decision might hurt drillers

Petróleo Brasileiro S.A aka Petrobras is planning to release details from a programme dubbed Procop that is to address its cost base in December. The goal is to optimize operating costs and media in the know has thrown numbers in between 5 and 15 billion reais (2-6 billion Euros or 14-42 billion NOK). This will have an effect on contractors of the company.

Newspaper Dagens Næringsliv (DN) interviewed industry experts on the matter. They opinionated that there is likely to consequences on its drilling activities, which in turn could pressure mid/deepwater segment where rates can be under pressure from an industry oversupply. DN listed firms such as Fred. Olsen Energy (OSE: FOE), Songa Offshore (OSE: SONG), Seadrill (OSE: SDRL) Awilco Drilling (OSE: AWDR) as those affected. A. P. Møller-Mærsk (OMX: MAERSK A, MAERSK B) could be affected to a lesser degree. Additionally offshore vessel makers, sellers and renters are likely to think of what is coming as well.

Seadrill’s operational headquarters to be moved away from Norway

Offshore drilling company Seadrill (OSE: SDRL, NYSE: SDRL), which has quickly grown into a major international player, is moving its management team away from Stavanger, Norway. While the rather deceiving press release released few days ago firstly claims the changes made are intended to ensure safe and efficient operations, once the increasingly confusing (and typically Fredriksen-esque) corporate structure is explained in detail, the main reasons for the move are given. Those are costs of travel and overall cost level in Norway, the difficulty to attract top personnel in Stavanger and global focus of the formally Bermuda-headquartered company.

The options for new operational headquarters include London, Dubai, Singapore and Houston. A recently separated and majority owned North Atlantic Drilling Limited will continue to manage North Atlantic operations from Stavanger. It is said to be seeking U.S.-listing later on and is currently quoted N-OTC list in Norway CEO of Seadrill Management, Alf C. Thorkildsen stepped down as a result of the decision. He is being replaced by young Archer Limited (OSE: ARCHER) CEO Fredrik Halvorsen.

Insiders snatching Archer shares

Drilling and well services company Archer Limited (OSE: ARCHER) jumped to some hefty gains on Friday after a large insider purchase was made for the second day in a row. The company announced that Executive Vice President & CFO Christoph Bausch bought 30 000 shares at an average price of NOK 8.07, doubling his share holdings. A day before that President North America & EVP Ronney Coleman had bought 75 000 shares at 8.47 NOK to open up a position in the company. Both of them have a few hundred thousand stock options on top of the direct holdings.

Major owner Seadrill ASA (OSE: SDRL, NYSE: SDRL) already expressed frustration over Archer’s share price performance back in February when it took a large impairment charge related to the share performance , insinuating that the level back then significantly undervalued the true value in the business that the management should be able to unlock. At that time Archer was trading nearly two times above its current level of 8.65 NOK.

Fredriksen sells shares in Seadrill - to pursue other opportunities?

A flagging from Seadrill limited (OSE: SDRL, NYSE: SDRL) explained that Hemen Holding Limited, a company controlled by Chairman John Fredriksen's family, concluded the planned sale of 24 million shares of Seadrill combined with 24 million put options to de-risk the move, in a transaction with Goldman Sachs International which is handling counter-party matching. The combined price of a share and a put option was 236.3176, making the transaction worth 5,664 million NOK (about 1 billion USD).

It was explained that at a market value of 5.6 billion USD, the Seadrill holding had grown disproportionally large part in Fredriksen Group's investment portfolio of listed companies (some 68%). The group plans to diversify its portfolio and give sufficient liquidity to aggressively pursue investment opportunities in the commodity shipping market. These might include buying distressed companies, ordering new ship or nidustry consolidation transaction.

Should all the put options be exercised in physical delivery at maturity, Hemen’s position would naturally remain at 28%. Seadrill retreated over 3% down to 223 NOK as investors contemplated the implications of a potentially lessened focus on the company by its Chairman.

Seadrill's board excited about the industry development

Seadrill Limited (OSE: SDRL, NYSE: SDRL) released fourth quarter and preliminary annual results for 2011 this morning. Total quarterly operating revenues were over 1 billion U.S. Dollars and net operating income 436 million $. Due to the non-cash write-down charge on Archer shares announced couple days ago, fourth quarter EBIT is negative -65 million.

Full-year revenues were nearly 4.2 billion USD with net operating income and EBIT both close to 1.7 billion. Full-year diluted earnings per share were 3 USD (about 16.66 NOK). The Board of Directors suggest a quarterly dividend of 5% to $80 (~4.44 NOK) cents a share.

Main events during the quarter were contracts for ultra-deepwater rigs West Capricorn, West Leo and West Aquarius with aggregate revenue stream potential of 1.6 billion USD, jack-up rig contracts for West Ariel, West Callisto and West Prospero and a contract for semi-tender rig West Espeanza, which is under construction.

New filing of the Seabras subsidiary paperwork for listing the company on Brazil stock exchange BM&F BOVESPA is expected in March with anticipated listing in April 2012. Market demand for offshore drilling has strengthened further with ultra-deepwater rig daily rates in particular spiking fast. Seadrill expects those rates to top 600 000 USD within the next months.

The guidance fo operating results in Q1 2012 is for a slightly better result vs. Q4 2011. Margins during the year are expected to remain at similar levels compared to 2011 despite some cost pressures particularly in Angola and Brazil. Seadrill’s Board is confident of further growth and subsequent increasing cash dividend going forward. The stock has climbed slightly to trade around 232 NOK.

Seadrill sees this as an opportune time

Seadrill (OSE: SDRL, NYSE: SDRL) says it has felt a surge in long-term demand for tender rigs in the last year and thus plans to further increase its rig availability from 2014 onwards. For starters it is ordering two new ultra-deepwater drillships from Samsung Heavy Industries in South Korea. The estimated price per drillship is under 600 million USD, which isn’t any higher than its last three orders from the company, but the drillships come with additional features.

Chairman John Fredriksen hinted it is likely that other commitments to tender and ultra-deepwater new buildings will be made in the coming weeks. The company thinks that rig availability will be a bottleneck for deepwater ramp-ups in the coming years as industry safety standards and other stringent demands following the Gulf of Mexico disaster have had an impact.

Seadrill’s Board of Directors is convening to approve Q4 and 2011 preliminary results tomorrow after the close of business and thus will release its Q4 earnings on Wednesday February 29th before market open.

A 463 million non-cash impairment charge will be taken on investment in Archer Limited (OSE: ARCHER) to match the market value of Archer on December 31st. Currently Archer is trading at around 15 NOK where as it was at 16.1 NOK on that date. Seadrill says it is disappointed in the recent developments in Archer but feels there is fundamental strength in the business model that the new management should be able to unlock. Seadrill’s stock was up slightly for the day.

Delay in Seadrill’s intended listing of Brazilian operations

Seadrill ASA (OSE: SDRL, NYSE: SDRL) reiterated that it is intending to list its Brazilian subsidiary, Seabras Servios de Petrleo S.A. in Sao Paolo stock exchange and also said that subsequent to second filing with Brazilian Securities and Exchange Commission Seabras has agreed with Petrobras to make some changes to its corporate structure.

Seadrill now says it will not be possible to complete the proposed restructuring and receive consent from lenders within the time limit for filing mentioned in earlier. Therefore it will not be possible to file the planned ~750 million Euro IPO on earlier communicated date of February 9th. The company now estimates the offering to take place in April.

The listing is seen as a continuum of the recent movement by oil tanker and shipping tycoon John Fredriksen, who is a major owner in Seadrill, to focus on offshore. Relations with Petrobras and the company’s standing in Brazil in general are expected to be strengthened as a result. The drilling potential in Brazil is seen as very large. Most analysts view this announcement as just that, a delay because of practical issues.

OSLO BØRS has placed Seabird under Special observation, which is a measure attached to companies for which present circumstances make the pricing of the shares particularly uncertain. Price quotation of the company will then be looked into in more detail. Investors in different countries should be aware that dividends from a company listed in Bermuda such as Seadrill may be treated differently, for example as personal income rather than as capital gains, by the tax officials. Seadrill is down 1.2% which is pretty much in line with the general decline in Oslo exchange so far today.

Changes involving Nordic firms in STOXX indices

European index specialist STOXX Limited completed an annual review of its Blue-Chip indices. Finnish mobile phone manufacturer Nokia (OMX: NOK1V) will be removed from STOXX Europe 50 Index as it is still down 40% for the year despite a little bit of a rebound in recent days.

There are also some changes in STOXX Nordic 30 Index with Skanska (OMX: SKA B) and Vestas Wind Systems (OMX:VWS) being taken out to be replaced by Swedbank(OMX: SWED A) and Seadrill (OSE:SDRL, NYSE:SDRL). The changes will take effect on September 19th.