On August 08, 2014, Seadrill (NYSE:SDRL) announced a contract win for its under construction ultra-deepwater rig, West Saturn. Seadrill and its indigenous partner, Field Offshore Design Engineering Nigeria Limited won the contract to deploy the rig for Esso Exploration and Production Nigeria, a subsidiary of ExxonMobil (NYSE:XOM). The contract is for the initial period of two years with the option to extend it for the third year, and it has the total revenue potential of about $497 million for Seadrill and its partner.
West Saturn is currently under construction at Samsung Heavy Industries and it will be delivered in September this year. The contract win confirms our belief that the company will not face trouble winning contracts for its newbuilds - the day rate for this contract comes out to be around $680,000 for the initial two years, including the mobilization costs. Despite fears about the overall sector; the day rates remain strong and further confirm our view that the demand for high-specification ultra-deepwater rigs will remain strong and the day rates will also remain close to current levels.
I remain bullish about the sector in the long-term, and maintain my view that the slowdown in CapEx from major oil and gas companies will be short-term. In the meantime, Seadrill's strategy to manage its newbuilds program and its strong ties within the industry will allow the company to secure contracts for its newbuilds as well as out of contract rigs. Furthermore, Seadrill's has one of the newest rigs portfolios, which should allow the company to maintain an advantage in the sector. I maintain that Seadrill is a solid long-term pick.
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