Rosneft deals beat EU sanctions

August 1, 2014

Rosneft and North Atlantic Drilling Ltd. (NADL) executed multiple long-term offshore drilling contracts at the end of July, just before the newest round of European Union (EU) and US-issued sanctions were enacted. Rosneft committed to six offshore drilling units until 2022. The rigs will head to Russian waters beginning in 2015-2017, NADL said.

The executed contracts include five-year contracts for the West Navigator,  West Rigel, and West Alpha semisubmersibles, two newbuild CJ-54 class rigs, and a 2.5 year contract for a Gusto-class jackup rig.

The contracts are a result of the investment and cooperation agreement between Rosneft, NADL and Seadrill Ltd. executed in St. Petersburg on 24 May in a signing ceremony led by Russian Federation President Vladimir Putin. At that time, six letters of award were signed for the harsh environment drilling rigs, with Rosneft saying in a statement that the use of up to 9 rigs was being considered. Alf Ragnar Lovdal, NADL's chief executive officer, hailed the agreement as a "landmark transaction."

NADL placed the total revenue potential for the six contracts exclusive of mobilization at approximately US$4.25 billion. According to the agreement, which the company said was consistent with the initial agreement's provisions, any break rights expire after 100 days.

Seadrill Ltd. is the majority leader of the Norwegian drilling rig company, which currently has nine drilling rigs in its fleet.

The EU adopted another packet of sanctions related to Russia's role in the Ukranian crisis effective 1 August targeting "sectoral cooperation and exchanges with the Russian Federation." Among other measures, the sanctions are designed to "curtail Russian access to certain sensitive technologies that can be used for oil production and exploration." At the time of this writing, the US has not yet followed suit with its expected sanctions.

The new package was formally adopted by the EU on 31 July. Speaking to Bloomberg, Seadrill Chief Financial Officer Rune Magnus Lundetrae said the contracts could proceed because they were signed 29 July, before the sanctions took effect.

Also executed on the wire was an US$150 million, 2.5-year agreement between Rosneft, NADL and Northern Offshore Ltd. for the use of Northern Offshore's Energy Endeavor jackup. 

"[The sanctions are] meant as a strong warning: llegal annexation of territory and deliberate destabilization of a neighboring sovereign country cannot be accepted in 21st century Europe. ... The European Union will fulfil its obligations to protect and ensure the security of its citizens. And the European Union will stand by its neighbors and partners," the EU said.

Sanctions were issued against Rosneft president earlier this year.



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