Going big

Despite an oversupplied market, we believe rig market psychology has moved in favour of the drilling contractors, most recently helped by consolidation. Hence, bidding discipline for jobs with forward start dates could remain strong, resulting in more willingness in the equity market to price in a recovery.

Decent 6G drillship transaction

Single asset company Golden Close announced that it has sold the warm-stacked 6G UDW drillship Deepsea Metro I (10,000 ft from 2011) for USD262m to an Asian buyer. We believe TPAO (Turkish Petroleum), which earlier acquired the sister vessel Deepsea Metro II, is a likely buyer. We consider the price solid, and above our USD200m–250m NAV benchmark for similar rigs. Compared to current equity market valuation of the offshore drillers, we estimate that 6G and 7G drillships are valued at USD235m a...

All eyes set to be on Brazil

With bids for a 2-rig UDW tender for the Libra development closed last week and two other bids due to close shortly, we believe all eyes in the UDW market will be on Brazil in the coming months. We consider the outcome of these tenders important for the direction of the global UDW market, and key to watch.

Northern Lights

Borr Drilling (Buy, TP: NOK39.00) - Positioned to gain from expanded ...

With increased scope on the ongoing QatarGas jack-up tender to 8–9 rigs (from six rigs), we believe Borr Drilling is well positioned to put more rigs to work, being among the few contractors that have multiple rigs available that meet the requirements. The tender is one of the key opportunities in the jack-up market at present, and as we see limited competition, we believe some contractors may test higher pricing.

Non-premium all-stock M&A

Rowan and Ensco today announced they have agreed to a tie-up under which Rowan shareholders would get 2.215 Ensco shares per Rowan share in an all-stock combination. The exchange ratio is similar to Friday’s close. Hence, being a non-premium deal the value creation relates to potential synergies, which the groups expect to be USD150m annually. We like the pending deal, as we argue more industry consolidation is needed to help the market recovery and discipline.

The contango test

We believe recent contract awards at USD110k–130k for high-spec 7G drillships finally represent a trough in the UDW market. Despite the UDW rig count being at its lowest level during the downturn and utilisation forecast to remain soft, we believe higher oil prices have boosted confidence and long-term optimism among contractors. Hence, bids – in particular for work with start-up in late 2019/2020 – have moved up. We believe contractors’ discipline and the outcome of a selection of such ...

Stranded drillships may sail away

As per our note last week we continue to see decent interest from both financial and industrial players for the remaining stranded UDW drillships at Korean yards, and we now believe all three stranded UDW rigs at Samsung are about to find new owners. We expect yard prices in the low to mid USD300m per drillship. With the exception of Rowan (which is trading at a discount to the group), share prices of the large-cap drillers already reflect asset values at these levels. Also, we believe the two s...

Patience needed

We have been impressed by the operational and technical achievements of Polarcus. However, as consensus is for a 17% YOY sales increase in 2019, we believe that in the coming months revisions will hinder the shares: thus we maintain HOLD, while we have cut our target price to NOK2.2 (2.4) on downward estimate revisions.

Northern Lights

Borr Drilling (Buy, TP: NOK39.00) - Building up contract momentum

With Q2 results largely in line with our forecast, and slightly below consensus, we consider Borr’s commentary about preparing rigs for contract as the main takeaway from the report. We expect investor focus to be on Borr establishing a broader operation and adding backlog on its newbuilds. We see most near-term prospects for Borr in West Africa, followed by the North Sea and Middle East. We maintain our BUY and target price of NOK39.

Northern Lights

Borr Drilling (Buy, TP: NOK39.00) - Disciplined contracting approach ...

After aggressively building the largest premium jack-up contractor since its inception in late 2016, Borr is finally starting to see jack-up market fundamentals move in the right direction. With higher utilisation, solid tendering activity and dayrates bottoming out, we believe Borr will more actively pursue contract opportunities. For Q2 (results due on 23 August), we forecast EBITDA of USD-12.5m. We keep our BUY recommendation and target price of NOK39.

Set for a rush of UDW awards

Kicked off today by Tullow confirming a 3-well contract plus options with Stena for Ghana work, we expect ~15 UDW jobs to be awarded in the next few months. While the majority of these jobs are short-term (1–3 wells), there are some with durations of ~1 year as well as a long-term job for Chevron in Australia. Improved contracting activity is generally considered positive by the equity market and we believe this may support upbeat market commentary from contractors on their Q2 earnings calls. ...