Thai subsea services company Mermaid Maritime has decided to sell its stake in Asia Offshore Drilling, a drilling joint venture with Seadrill, to limit its exposure to the volatile offshore drilling market.
Mermaid, which owns a 33.76% in AOD, said Tuesday it has decided to exercise a put option that allows it to sell its shares in the JV to Seadrill, which owns the remaining shares.
"On 11 September 2020, [Mermaid] exercised the Put Option to sell all of its shares in AOD, representing 33.76% of the issued and paid-up share capital of AOD [...], to Seadrill [...]."
Mermaid said that the consideration for the disposal is US$31.0 million, and will be satisfied wholly in cash. Mermaid said the amount had been mutually agreed by the company and Seadrill taking into consideration, inter alia, two independent valuations of the three jack-up drilling rigs owned by AOD conducted in August 2020 and the net book value of the other net assets of AOD.
Mermaid explained that its core business is the provision of subsea and related services to the offshore oil and gas industry and that its investment in AOD, which is in the offshore drilling services business, is a non-core asset of the company.
"Due to challenging market conditions, the company had already divested its own tender assist drilling rig business and disposed of its two remaining tender rigs in 2018, and had also entered into the transaction support agreement which contained the put option in the same year. The disposal of the sale shares is thus in the ordinary course of business of the company," Mermaid said.
Mermaid said: "The company is a minority shareholder in AOD and majority ownership and management control of AOD is with an affiliate of Seadrill. As such, the company has no control over the business and operations of AOD. In light of the Covid-19 pandemic, the offshore drilling industry has been seriously affected on all fronts, with a drought of new contracts, early termination of some existing drilling contracts, and/or renegotiation of existing day rates.
"As such, the company’s decision was to choose to exit AOD pursuant to the put option at this time in order to minimize its exposure to the challenging industry conditions and protect its cash position. The disposal of the sale shares will also provide additional working capital, maintain liquidity and balance sheet strength during these market challenging times, and enable the company to focus on growing its core and related businesses with the target to turn around a profit."
Mermaid also said that had it not exercised the put option and allowed it to expire on September 30, 2020, there would be no assurance that it would be able to exit from its investment in AOD in the future.
Seadrill also confirmed it has agreed to acquire Mermaid shares in AOD for $31 million. The Oslo-listed drilling company said that the completion of the share transfer and payment would occur by the end of September 2020.
Following completion, Seadrill will, through its subsidiary Seadrill Rig Holding Company Limited, hold 100% of the shares in AOD.
Asia Offshore Drilling owns three 2013-built jack-up rigs, all of them on contracts with Saudi Aramco.
The recent oil price downturn has seen one rig (AOD II) suspended from operations from June 2020 for a period of up to 12 months.
The contract has been extended for the suspension period, however, the day rate discount has been agreed for 2020 and 2021. Day rates have been lowered for the other two rigs AOD I, and AOD II, respectively.