Seadrill Set for Record Profits as Gamble on Drill Ships Pays Off

Seadrill Ltd is set to reap record profits after ordering more drill ships based on billionaire owner John Fredriksen’s belief that ever greater demand for crude oil will cause an increase in offshore wells.

Within two years another six new drill ships will be added to the current fleet of four. The vessels will help oil companies drill for oil that is locked in reserves up to seven miles beneath the waves, and according to RS Platou Markets AS, an investment bank in Oslo, will earn an average of $625,000 a day. Shares in Seadrill are expected to increase by 22 percent over the next 12 months.

Unlike other, more cautious competitors, Seadrill ordered the new vessels before finding new clients to use them, allowing the company to expand faster than others in the market. Fredriksen’s gamble looks as though it will pay off as Petroleo Brasileiro SA (Petrobras), the owner of the Western Hemisphere’s largest oil discovery in three decades, has declared its intentions to hire 20 rigs with a plan to drill 32 new wells this year.

Alf Christian Thorkildsen, chief executive officer of the management unit at Seadrill, said that by placing orders before there is the demand means that they can take advantage of lower prices, and get first slots in the shipyards.

James West, an analyst at Barclays Plc, believes that “the industry is pushing further into deeper waters, and drillships are the most versatile assets in the fleet. Seadrill is by far the most aggressive builder, and they’ll be in a great position to supply those ships to the market.”

However, Steven Newman, CEO of Transocean Ltd, the biggest owner of drill ships, has said that speculative building isn’t good for the market as it could lead to over capacity, and therefore lower prices and profits. His company has not placed any new orders since 2010.

The new drill ships will cost an estimated $600 million to build, but they will earn this back within four years. Seadrill’s net income is expected to increase by 8.2 percent to a record $1.54 billion this year, and continue to increase for the next couple of years.

Company shares are trading up 1.2 percent to 202.4 kroner in Oslo this year, and are forecast by analysts to reach 246.34 kroner in 12 months.

By Charles Kennedy of Oilprice.com