To recap, Transocean announced overnight that the company will acquire all outstanding shares in Norway-based rig owner, Songa Offshore, in an shares, convertible bonds, and cash deal. Transocean currently has 44 floating rigs compared to Songa’s seven.
Transocean looking to secure a foothold in the Norwegian semisub market
The focus of this transaction is on the four Cat-D semisubs on long-term contracts with Statoil. As we’ve previously written, the potential for a supply shortage of midwater harsh environment semisubs in Norway exists, and Transocean took the opportunity to secure a place in the market via the Songa acquisition.
With dayrates between $450,000 and $490,000 and contract terms with Statoil going out until 2023–2024, the four Cat-D semisubs have the best backlog in the semisub fleet at around $4 billion.
After recent retirements, Transocean has five NCS-compliant remaining. Only one of these is currently working in Norway (Transocean Arctic; delivered in 1987), and only two (Transocean Barents and Transocean Spitsbergen; delivered in 2009) are modern. Their four older NCS semisubs are over thirty years old, and while two of these are still drilling, they are unlikely to return to the Norwegian market as oil companies prefer newer, more efficient, safer, and environmentally-friendly rigs.
|Name||Type||Full design name||Water depth (outfitted)||Year in service||Status||Location|
|Transocean Spitsbergen||Semisubmersible||Aker H-6e||6500||2009||Drilling||UK|
|Transocean Barents||Semisubmersible||Aker H-6e||6500||2009||Drilling||Canada|
|Transocean Leader||Semisubmersible||Aker H-4.2||4500||1987||Drilling||UK|
|Transocean Arctic||Semisubmersible||Marosso 56||1650||1987||Drilling||Norway|
|Polar Pioneer||Semisubmersible||4th Gen. Polar (Sonat) Hitachi||1640||1985||Cold stacked|
So with the Songa acquisition, Transocean effectively goes from having zero modern rigs on contract in Norway to operating a fleet of four NCS semisubs on long term contracts with Statoil. This places them in a leading position in the region.
Deal pricing attractive for Transocean
Based on the announced deal, Songa’s enterprise value is $3.4 billion which implies a value of $850 million per Cat-D rig. Our Rig Valuation Tool (RVT) values rigs on a charter-free basis, and values generated for the Cat-D rigs range from $342–378 million. Taking out the NPV of the backlog, our estimate of implied charter-free value based on the transaction is around $340 million per rig.
|Name||Type||Full design name||Water depth||Year in service||Status||Oper. area||Contract end date||Day rate||RVT Value|
|Songa Equinox||Semisubmersible||GVA 4000 NCS||1640||2015||Drilling||Norway(SUT)||December 2022||490 000||342 – 378|
|Songa Endurance||Semisubmersible||GVA 4000 NCS||1640||2015||Drilling||Norway(SUT)||January 2023||490 000||343 – 378|
|Songa Enabler||Semisubmersible||GVA 4000 NCS||1640||2016||Drilling||Norway(SUT)||July 2024||457 000||344 – 378|
|Songa Encourage||Semisubmersible||GVA 4000 NCS||1640||2015||Drilling||Norway(SUT)||December 2023||453 000||345 – 378|
|Songa Dee||Semisubmersible||Mitsubishi MD-602||1800||1984||Cold stacked||Norway(SUT)||3 – 5|
|Songa Delta||Semisubmersible||Ocean Ranger||2300||1981||Cold stacked||Norway(SUT)||3 – 6|
|Songa Trym||Semisubmersible||Aker H-3||1312||1976||Cold stacked||International||2 – 4|
Although average dayrates in the Norwegian sector are around 60% of the Cat-D semisub dayrates, we estimate that by the time the rigs get off contract, market dayrates will have risen to levels near the current Cat-D contract rate levels. Based on this along with the fact that market clearing levels for comparable midwater harsh environment semisubs (West Mira, Bollsta Dolphin) are much higher than the implied Songa rigs at around $400 million, the Songa acquisition price is justified.
More scrapping and consolidation to come
With four new NCS compliant semisubs on their books, Transocean will likely scrap more of their harsh environment legacy semisubs along with Songa’s three old rigs.
And with Songa gone from the field, we expect other major drilling contractors to make moves toward select midwater harsh environment assets over the next year or so.
Image attribution: main image by Songa Offshore