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SeaDrill Ltd (NYSE:SDRL) entered into two drilling contracts in Asia over the past few weeks. These contracts are each for the use of one of the company's jack-up rigs and both are relatively short-term contracts. Contracts of any length still generate revenue and profit for the company though and should not be overlooked.

The first contract is with PTTEP in Thailand. PTTEP has contracted with SeaDrill for the use of the West Leda rig. This contract is for $35 million over the course of nine months. PTTEP has the option to extend the contract for an additional six months after the nine month period expires. The amount that PTTEP will pay SeaDrill should the option be exercised was not disclosed and may be based on the spot price at that time. Nine months is approximately 270 days. A contract value of $35 million over 270 days gives the rig an approximate dayrate of $129,600. This represents a decrease from the current West Leda dayrate of $138,000. The rig was under contract in Indonesia throughout most of the second quarter. That contract ended in May and expectations are for this contract to begin immediately after the end of that one – this would give the new contract a start date of sometime in June. Overall, this new contract is good for investors even though the dayrate looks to be slightly lower than what the rig was earning off of the previous contract in Indonesia. This is because the West Leda rig would have been stacked after the completion of the previous contract prior to a new contract being signed. Stacked rigs generate no revenues and incur stacking costs so they are a drag on profits. This new contract ensures that the West Leda rig will continue to generate revenues and profits for SeaDrill.

The second contract is with a subsidiary of Santos Ltd (OTCPK:SSLTY) for the use of the Offshore Resolute jack-up rig. The contract will require three wells to be drilled in Bangladesh for a total cost of $17.5 million. The contract also gives Santos an option to drill two additional wells at an undisclosed cost. The dayrate that has been assigned to this rig during the drilling of the first three wells is approximately $134,615. This represents an increase from the current dayrate of $127,500. I do not believe that I need to explain why the increase in the dayrate (and thus revenues) is a good thing for shareholders! Offshore Resolute is currently under contract with BHP Billiton until August of 2011. Offshore Resolute will be moved from Vietnam to Bangladesh immediately following the completion of that contract and the new one with Santos should begin in the third quarter.

Alf Thorkildsen, CEO of SeaDrill Management AS, was quite pleased with these two contracts, stating about the first one in Thailand:

"We are pleased to secure a new contract for one of our jack-ups in the Southeast Asia region. We consider this as an excellent opportunity to further strengthening our relationship with PTTEP, one of our key customers. Representing a total contract value of US$35 million, this assignment improves the earnings visibility for our jack-ups."

These two contracts help to secure the earnings from the company's jack-up division over the next two quarters. SeaDrill has a few more jack-up rigs that will be coming off contract in the next year including one that will come off contract in the second quarter. That one is the West Juno rig and it will be sold off after the second contract completes in June. The selling price of West Juno is $248.5 million which will give SeaDrill an expected gain on sale of $18 million. I have faith that SeaDrill will be able to secure new contracts for the remaining rigs that will be coming off of their respective contracts in 2011. I will, as always, continue to keep readers updated on the status of this company as new developments happen.

Disclosure: I am long SDRL.

Source: SeaDrill Improves Earnings Visibility With Two New Contracts