Contracts Continue to Flow in Oil Drilling Sector

Noble has announced it is buying Frontier Drilling and has inked a number of new contracts with Royal Dutch Shell

Stephen Ellis 29 June, 2010 | 3:03PM
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Noble announced Monday that it has agreed to acquire Frontier Drilling, as well as a number of new contracts with Royal Dutch Shell. Frontier Drilling owns six floating rigs, which are all under contract, including two ultra-deep-water rigs. The acquisition nets Noble another $2 billion in backlog, which stacks up fairly favourably against the all-cash acquisition price of $2.16 billion. The acquisition will be funded with a combination of cash, Noble's existing credit facility, and an $800 million bridge credit facility. Noble will also take on the remaining construction payments for the two ultra-deep-water rigs, as well as $311 million in existing financing for the rigs.

As five of the six Frontier rigs are contracted with Shell, Noble also announced a series of agreements for its existing fleet. Noble signed a 10-year contract with Shell for the Globetrotter, which is due to be delivered in the second half of 2011. The contract calls for a day rate of $410,000 for the first five years. During the second five years, the day rate will adjust every six months based on the market index for similar rigs. Shell agreed to similar terms for a second ultra-deep-water rig that should be delivered in the second half of 2013. Noble also agreed to reduce the Jim Thompson's day rate to $336,200 for the remainder of the contract term, which includes a three-year extension after the current contract wraps up in 2011. Finally, Shell agreed to pay a reduced day rate for Noble's rigs in the Gulf that are affected by the moratorium. The contract term will then be extended to take into account the moratorium downtime at the original contract day rate. Overall, the agreements tie Noble very closely to Shell, but also provide a significant amount of highly profitable backlog during a period of uncertainty for the industry.

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Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.