Seadrill Ltd. entered into an agreement with Seadrill Operating LP, the 58%-owned subsidiary of Seadrill Partners LLC, pursuant to which Seadrill Operating will acquire all of the shares of Seadrill Polaris Ltd., the entity that owns and operates the drillship, the West Polaris, from Seadrill Ltd. The Polaris acquisition is expected to close in July 2015.
The West Polaris is a sixth generation, dynamically positioned drillship delivered from the Samsung shipyard in 2008. The West Polaris is expected to carry out operations in Angola until the end of its contract with ExxonMobil in March 2018.
The sale includes US$204 million in cash and $336 million of debt outstanding under the existing facility financing the West Polaris. Seadrill Operating will fund the balance of the purchase price with a seller's credit of $50 million due in 2021 that carries an interest rate of 6.5% per year.
Based on the assumed present value of the seller's credit, excess dayrate to be paid to the Seadrill Ltd. under the current drilling contract and assumed excess dayrate to be paid to Seadrill Ltd. following the conclusion of the current drilling contract, the board of directors of Seadrill Ltd. believes that the total value proposition of the West Polaris acquisition for Seadrill is $750 million.
The contract with ExxonMobil includes a daily rate of $653,000. Under the terms of the acquisition agreement, Seadrill Polaris has agreed to pay Seadrill Ltd. any dayrate it receives in excess of $450,000 per day, adjusted for daily utilization, for the remainder of the ExxonMobil contract. Assuming an average economic utilization of 95%, Seadrill will receive $60 million in cash per year from the current ExxonMobil contract. Additionally, Seadrill Polaris has agreed to pay Seadrill 50% of any dayrate above $450,000 per day, adjusted for daily utilization, after the conclusion of the existing contract until 2025.
As part of the acquisition agreement, Seadrill Operating's obligation to repay the $50 million seller's credit due to Seadrill will be reduced if the average contracted dayrate under any replacement contract is below $450,000 until the seller's credit's maturity in 2021. The amount of seller's credit due will be reduced until Seadrill Partners' effective dayrate is $450,000 or until the seller's credit is reduced to zero. Should the average dayrate of the replacement contract be above $450,000, the entire $50 million seller's credit must be paid to Seadrill upon maturity of the seller's credit in 2021.
By agreeing to sell the West Polaris to Seadrill Partners, Seadrill is able to realize $204 million in cash upon closing of the transaction while retaining up to $203,000 per day in revenues under the current drilling contract without the associated operating expense. Additionally, following the conclusion of the current contract, Seadrill will continue to have a degree of exposure to future dayrates by sharing revenues above $450,000 per day with Seadrill Partners, again without the associated operating expense. The board is pleased with the transaction that serves to realize value from multiple sources in addition to the sale price, while at the same time supporting an important associated company in its goals to increase distribution coverage, asset diversification and revenue backlog.
Image: West Polaris / Seadrill
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