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May 20, 2014

Hercules Offshore wins $420m contract from Maersk Oil

Houston-based Hercules Offshore has been awarded a five-year drilling contract by Maersk Oil North Sea UK for a newbuild jackup rig.

Houston-based Hercules Offshore has been awarded a five-year drilling contract by Maersk Oil North Sea UK for a newbuild jackup rig.

The contract, which is expected to commence in mid-2016, is valued around $420m and includes approximately $9m of mobilisation fees.

Hercules has also entered into a rig construction deal with Jurong Shipyard in Singapore where the rig will be based on the Friede & Goldman JU-2000E design.

The rig is set to include enhancements, which are based on collaborative efforts between Maersk Oil, JSL and Hercules Offshore.

According to the company, these enhancements will provide for greater load-bearing capabilities and operational flexibility.

The harsh environment (HSHE) rig will feature a 400ft water depth rating, 30,000ft drilling capacity, two million pounds of static hook load, 75ft cantilever reach, off-line pipe handling capability, 15,000psi blowout preventer systems, high pressure / temperature rating and accommodation capacity for up to 150 personnel.

Around $236m is estimated as shipyard cost of the rig, including project management, spares, commissioning and other costs, while total delivery cost is estimated at $270m.

"We have structured the investment to balance between maximising returns and minimising investment risk."

An initial payment of $24m is set be paid by Hercules Offshore to JSL, followed by a second 10% payment one year after the initial payment, with the final 80% of the shipyard payment due upon delivery of the rig, estimated in April 2016.

Hercules Offshore president and CEO John T. Rynd said: "Strategically, this opportunity further demonstrates our worldwide capabilities and expands our operational footprint to the North Sea with a leading operator in the region.

"The rig will operate in the central North Sea to develop Maersk Oil’s high-profile Culzean Field.

"The decision by Maersk Oil to contract a newbuild rig with specific enhancements was driven by the unique challenges to develop this field.

"Given these enhancements, we expect demand for this rig in the North Sea to extend well beyond the initial five-year fixed contract term, with two one-year unpriced options.

"This investment is also consistent with our commitment to renew our rig fleet with high-specification assets that are expected to garner strong long-term demand.

"We have structured the investment to balance between maximising returns and minimising investment risk.

"Cash-on-hand will be used to fund the initial shipyard payments and we plan to secure project financing to fund the remaining payment as the rig nears delivery."

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