Transocean Ltd RIGN.VX (RIG.N), the world's largest offshore driller, will sell some shallow-water rigs and discontinue its standard jackup operations to focus on the lucrative, high-specification jackups and ultra-deep water rigs.
Older rigs have lower demand and higher downtime and maintenance costs eat into drilling firms' profits, while high-specification rigs are more efficient, competitive and can fetch much higher dayrates with growing demand in offshore drilling.
The company, which is selling 38 shallow-water drilling rigs to a Dubai-based firm for $1.05 billion, said it is looking for a buyer for the remaining cold-stacked standard jackups.
Transocean is currently in discussions with a major oil company for construction of four ultra-deepwater drillships and a contract for a 10-year period, the company said.
Ultra-deep wells, drilled at least 4,500 feet deep into several more kilometers, have accounted for more than half of the world's new discoveries so far this year, data from consultancy firm IHS Offshore Rig Consulting showed.
Transocean said it is in talks to borrow between $500 million and $1 billion to fund its deep-water fleet expansion.
The sale comes nearly three months after three sources told Reuters that Transocean has put its Middle East rig assets up for sale, in a deal likely to raise $1 billion for the Switzerland-based company.
OLD vs NEW
Most of the rigs, of the 38 sold to Shelf Drilling International Holdings Ltd, were at least 30 years in service and were all based outside North America.
"This agreement (deal with Shelf) marks an important milestone in our asset strategy to increase our focus on high-specification floaters and jackups, improving our long-term competitiveness," Chief Executive Steven Newman said in a statement.
Transocean owned the rig destroyed in the 2010 Gulf of Mexico oil spill. BP Plc (BP.L) owned a majority of the Macondo well, where a blowout led to the largest offshore oil spill in U.S. history.
The Macondo oil spill also prompted stringent safety regulations that have increased costs for drillers.
Analysts at Tudor Pickering Holt Energy Research said while it was good to see divestment of non-core assets, the valuation indicates there were not many alternative buyers.
The deal was struck with Shelf Drilling for about $855 million in cash and $195 million in preferred shares issued by an affiliate of Shelf Drilling.
Transocean said it now expects to incur between $120 million and $140 million of tax, personnel-related and other transaction costs associated with the sale.
The company said it expects a "significant" loss from the transaction and will discontinue operations in the standard jackup and swamp barge markets.
"While we understand that standard jackups may not be a management focus or going concern as a business over the next decade, the cash generation, earnings and EBITDA lost are all dilutive to Transocean in the near term," Global Hunter Securities analyst Brian Uhlmer said in a note.
Shelf Drilling is a newly formed company sponsored by private equity firms Castle Harlan Inc, CHAMP Private Equity and Lime Rock Partners.
Transocean on Sunday said Esa Ikäheimonen will succeed Gregory Cauthen as chief financial officer on November 15.
The company shares were flat at $47.46 in early morning trade on Monday on the New York Stock Exchange.
(Reporting by Sakthi Prasad and Thyagaraju Adinarayan; Editing by Sriraj Kalluvila)