New Player Enters Gulf Lineup: Energy
Posted on: Saturday, 17 May 2008, 06:00 CDT
By Brett Clanton, Houston Chronicle
May 17--The deep waters of the Gulf of Mexico, already a hotbed for oil and gas exploration, are about to get a little more crowded.
In a few weeks, Norway's Seadrill will bring its first drilling rig to the region, one of a new breed of ultradeep-water floating rigs that is in high demand as crude prices touch new peaks.
The arrival of the rig, called the West Sirius, signals that recent deep-water discoveries in the Gulf continue to attract global interest.
But it's also a reminder of Seadrill's rapid evolution from inexperienced upstart to serious player in the offshore drilling industry.
Just three years ago, the company was little more than a big idea. Today, it is the fourth-largest offshore driller by market capitalization and is commanding some of the most lucrative contracts in the industry's history.
Even so, Seadrill still faces challenges ahead. The company will be tested as it moves from overseeing construction of new rigs to operating the fleet in oil-producing regions around the world.
The company must also recruit more workers to run new rigs at a time when the market for skilled oil and gas workers is tight.
The labor issue has fed speculation that Seadrill may try to merge with another driller. It's also spurred rumors about aggressive tactics and over-the-top pay Seadrill has used to poach workers from rivals.
"If you ask our competitors, they'll say we're stealing all their people," said Tim Juran, senior vice president of Seadrill's Americas division. "In actual fact, that's not what's happening here. People are coming to us of their own free will."
Juran joined Seadrill in January 2007 after leaving Houston-based offshore drilling giant Transocean. Starting from scratch, his job was to establish a operations base for Seadrill in Houston.
"My fundamental concern coming in was, 'Can we pull this off?' " Juran said. "It became apparent pretty early on that we could."
West Houston office Today, Seadrill has a sleek new office in west Houston, which, in a nod to its Nordic roots, is an Ikea-like model of minimalist Scandinavian design. The office oversees rigs operating from Asia to Brazil, has more than 250 employees reporting into it and is growing.
But things didn't always look so bright at Seadrill.
Three years ago, Seadrill's owner John Fredricksen -- a billionaire shipping magnate and oil trader -- was considered crazy by some experts when he placed orders for two deep-water drilling rigs, at roughly a half a billion dollars apiece, before any oil company had agreed to lease the rigs. Traditionally, drillers do not order rigs until they have lease contracts in hand, which help defray project costs and reduce risk.
But with global energy needs rising, Fredricksen believed an oil boom was ahead and moved aggressively to bulk up through acquisitions. The biggest deal came in 2006 when Seadrill bought Smedvig ASA, a well-respected Norwegian driller, making clear Seadrill's intention to be an operator, not just an investor wanting to flip rigs for a profit.
"He got in early and he saw the market turning," said Omar Nokta, an industry analyst with Dahlman Rose & Co. in New York. "Now he's reaping the benefits."
Big bucks to lease With crude prices at record levels, oil companies are paying top dollar to lease drilling rigs, especially those capable of operating in deep-water regions once considered too costly to explore.
Because there are roughly 70 such rigs in the world, competition has been intense for them.
As it stands now, only 16 deep-water rigs are available to the market between now and the end of 2010, with only one more available this year and two in 2009, Nokta said in a recent report.
Seadrill is expected to complete construction of eight deep-water rigs this year, with another two arriving by 2010. But most of those are already spoken for.
At the same time, daily lease rates for high-tech floating rigs are soaring.
Seadrill currently holds the industry record at $630,000 per day for the West Taurus, which will be under contract to Brazil's Petrobras for six years. Other companies, like Transocean, Noble and Diamond Offshore, have seen rates near that.
Seadrill's West Sirius, which will arrive in the Gulf of Mexico in July, has a four-year contract with Devon Energy Corp. at roughly $450,000 per day, said Rick Mitchell, vice president of drilling and exploration and production services at the Oklahoma City-based oil company.
"We got what we think is a good rate relative to what the market's doing right now," Mitchell said.
$900,000 per day Yet he worries about the current trajectory of rig rates, which at $600,000 per day, can push an oil company's total daily cost of operations to roughly $900,000, he said.
The West Sirius' first stop will be at the Cascade field, operated by Petrobras, located in the Walker Ridge area in water depths ranging from 7,000 to 9,000 feet. Two development wells will be drilled there, he said.
Then, Devon will probably use the rig to drill exploratory wells in deep-water regions often called the Lower Tertiary and Miocene -- which refer to ancient rock beds where large oil and natural gas discoveries have been made in recent years, he said.
Such areas are accessible only with high-tech floating rigs like the West Sirius, which can operate in 10,000 feet of water and drill wells nearly 40,000 feet below the ocean floor.
"A lot of rigs just don't have that capability," Juran said.
Eager to expand Seadrill has made no secret of its desire to become a leader in the deep-water segment, hinting it may keep expanding by mergers and acquisitions.
Last month, Houston-based offshore driller Pride International disclosed that Seadrill had acquired a 9.9 percent stake in the U.S. firm.
Pride's board reacted to what it feared may be a takeover attempt by lowering -- to 10 percent from 15 percent -- the stake level required to prompt a rights issue.
Seadrill has said it is not interested in a hostile bid for the company, but has asked to have strategic discussions with Pride.
Both companies have been mum about their plans, but both have also said there could be benefits to more consolidation in the offshore drilling industry.
Buying and selling Juran noted that Seadrill has taken stakes in a number of companies in recent years and has moved to acquire some but has sold off positions in others.
"If it makes sense, you may see something happen," Juran said of a deal with Pride or any other deal.
"If it ceases to make sense, then something else will happen."
But while the company wants to keep growing, it is not interested in size for size's sake, he said.
"You don't need to be the biggest gorilla on the block to get contracts with big, credible oil companies."
brett.clanton@chron.com
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Source: Houston Chronicle
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