Ocean Rig - The Mylos In The Race For The Statoil 4-Year Charter In Brazil, Tough Competition Ahead

| About: Ocean Rig (ORIG)

Summary

Statoil has unveiled plans to charter a rig to carry out exploration work in the Espirito Santo basin - Brazil.

Norwegian StatOil expected to spud two wells each on four blocks off Brazil with four-year charter. The Ocean Rig Mylos seems the best choice working for Repsol 9/16.

However, this contract will be very competitive with Seadrill and Transocean also involved. The contract backlog could be approximately $400-$500 million, in my opinion.

Click to enlarge

Source: Statoil website. BM-C-033/ES-M-598,673,671,743

This article is an update of my previous article on Ocean Rig UDW (NASDAQ:ORIG), published on April 5, 2016.

ORIG is a new offshore drilling company providing oilfield services for offshore oil and gas exploration, development and production drilling.

The company is based in Nicosia, Cyprus.

On April 12, 2016, Upstreamonline published the following:

By Fabio Palmigiani, 12 April 2016 16:21 GMT

Norwegian oil giant Statoil has unveiled plans to charter a rig to carry out exploration work in the Espirito Santo basin off Brazil, sending a message to drilling contractors that it may launch a tender soon.

Norwegian state player expected to spud two wells each on four blocks off Brazil with four-year charter of Ocean Rig ... Indications Norway's Statoil has made discovery with first well in 2016 drilling .

A little history of the Ocean Rig Mylos.

On September 5, 2012, ORIG announced the following:

The drilling contract is for a 3-year period, commencing upon delivery of the drillship from the shipyard, for drilling offshore Brazil, with an estimated revenue backlog of approximately $700 million. Under the contract, Repsol also has options to extend the contract for up to two years beyond the initial three-year contract period.

The news is saying that the OR Mylos could be a possibility.

The OR Mylos is now working in the Espirito Santo basin off Brazil and is located:

Position Recorded on:2016-04-09 04:21:15 (UTC)

Lat/Lon:-23.34726 / -40.17895 (UTC)

Speed/Course:0.0 kn / 281°

The OR Mylos is working for Repsol Sinopec on the block BM-C-33 actually:

Source: Repsol website.

Block BM-C-33

  • Repsol Sinopec Brazil (35%) is the operating company in the block, along with Statoil (35%) and Petrobras (30%). As the operator of this block, we have made three important discoveries here: Pão de Açúcar (2012), Gávea (2011) and Seat (2010). The three fields together are one of the largest discoveries to date in the Campos basin pre-salt.
  • Halfway through 2014, the Brazilian authorities were notified of the discovery in block BM-C-33 of a significant column of hydrocarbons in deepwater in the Campos basin. The survey was drilled with the seventh generation "Ocean Rig Mylos" drilling rig.
  • In January 2015, ANP was informed of the positive preliminary results from the first evaluation well at the Pão de Açúcar discovery, in block BM-C-33, which is operated by Repsol Sinopec Brasil (35%). The evaluation well is currently in the final drilling phase.

The Ocean Rig Mylos will roll off its contract with Repsol around September 2016, with an actual dayrate of $651.31K/d (indicated in the last SEC 20F by the company.) Repsol has the option of extending the contract for up to two years beyond the initial three-year period, however, it is very unlikely due to the crash in oil prices.

A look at the Block BM-C-33 and the six blocks from Statoil are quite close.

Also, On October 7, 2015, we learn the following:

Finally, the rig provider also has been dealt a blow from client Repsol Sinopec, which has had the Ocean Rig Mylos drillship under a three-year, US$700 million contract since August 2013 offshore Brazil. The contract was originally supposed to run until 3Q 2016, yet, on 25 September, Ocean Rig received notice of material breach under the contract that entitles Repsol Sinopec to terminate the contract if such breach is not remedied within 75 days.

The matter has been fixed successfully and the OR Mylos is still working for Repsol/Statoil in Brazil -- Statoil is a partner in this block.

Statoil owns 6 six licences in Espirito Santo. Statoil is the operator for four and partner in two of the licences. (5/15/13)

ES-M-596: Petróleo Brasileiro S.A.* (50%), Statoil Brasil Óleo e Gás Ltda. (50%)

1 - ES-M-598: Statoil Brasil Óleo e Gás Ltda.* (40%), Petróleo Brasileiro S.A. (40%), Queiroz Galvão Exploração e Produção S.A. (20%)

ES-M-669: Petróleo Brasileiro S.A.* (40%), Total E&P do Brasil Ltda. (25%), Statoil Brasil Óleo e Gás Ltda. (35%)

2 - ES-M-671: Statoil Brasil Óleo e Gás Ltda.* (35%), Petróleo Brasileiro S.A. (40%), Total E&P do Brasil Ltda. (25%)

3 - ES-M-673: Statoil Brasil Óleo e Gás Ltda.* (40%), Queiroz Galvão Exploração e Produção S.A. (20%), Petróleo Brasileiro S.A. (40%)

4 - ES-M-743: Statoil Brasil Óleo e Gás Ltda.* (35%), Petróleo Brasileiro S.A. (40%), Total E&P do Brasil Ltda. (25%)

Conclusion:

The OR Mylos is a 7th generation UDW, which is working for Repsol Sinopec in the same general area, and may be the perfect choice for Statoil?

This is an important 4-year charter contract, which may be worth $450 million assuming a dayrate around $300K-$310K/d. Statoil will start the process soon according to the article aforementioned above.

Competition will be quite fierce and I believe Seadrill (NYSE:SDRL), Transcocean (NYSE:RIG) will be interested.

Disclosure: I am/we are long RIG, SDRL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I trade actively ORIG