John Fredriksen Sails Into Rig Storm of Up to three Years

By Mikael Holter

(Bloomberg) — Billionaire John Fredriksen has sailed by troubled waters earlier than. This time, he plans to profit from a brutal downturn in offshore drilling amid a stoop in oil costs and a glut of latest rigs.

Seadrill Ltd. stated final month that the rig firm 24 p.c owned by Fredriksen is able to purchase rivals or belongings “when the time is right” and to emerge from the downturn stronger than earlier than. In the meantime, the corporate should climate the storm as oil majors slash investments, Chief Executive Officer Per Wullf stated in an interview.

“If it takes a couple of years or even three years, this is manageable,” he stated at Seadrill’s London headquarters. “It won’t be the most attractive business in these years, but it’s a matter of how you bridge to the upturn.”

Seadrill and different rig corporations corresponding to Transocean Ltd. and Ensco Plc have had contracts terminated and brought billions of {dollars} of writedowns over the previous months as oil producers lower spending on drilling after crude costs plunged 50 p.c since June. The decline in demand comes as greater than 200 new rigs are being constructed, boosting oversupply after a decade of rising offshore investments.

Transocean, which has the largest offshore-rig fleet, stated final week it’s scrapping 4 floating rigs, bringing the entire variety of introduced retirements to 30 items, in accordance with a March 24 notice from Pareto Securities AS. Charter charges for probably the most superior vessels have dropped by greater than 40 p.c to $370,000 a day because the center of 2013, Pareto stated.

Ugly Cycle

Seadrill fell as a lot as 3.6 p.c and traded 0.5 p.c decrease at 76.75 kroner as of 1:42 p.m. in Oslo. HSBC Holdings Plc began protection of the inventory Tuesday with a scale back advice.

“This cycle can get really ugly,” Janne Kvernland, an analyst at Nordea Markets who has a promote advice on the shares, stated by cellphone on Wednesday. “Seadrill is in many ways fine. But two to three years can be a long time for some players.”

Fredriksen, 70, who made his fortune in transport, has seized alternatives in crises earlier than: he organized to lease vessels to the U.S. Army throughout the Vietnam War, made $40 million from tanker contracts acquired throughout the Yom Kippur War in 1973 and shipped oil from Iran to Syria throughout the Nineteen Eighties.

The Norwegian-born Cypriot citizen based Seadrill in 2005 with $200 million of fairness and 5 rigs and made it the world’s most dear offshore driller till the downturn noticed its market capitalization drop nearly 70 p.c to $4.9 billion within the final 9 months.

Shrinking Fortune

That’s contributed to Fredriksen’s complete internet value falling $415 million to $11.3 billion this yr, in accordance with the Bloomberg Billionaire Index, which ranks him one hundred and fifth. The Seadrill holding is now his second-biggest asset after his stake in salmon farmer Marine Harvest ASA.

After delaying supply on one drillship and eight jack-up rigs, Seadrill remains to be negotiating with shipyards, stated Wullf. The firm is scheduled to take supply of items this yr from yards together with Samsung Heavy Industries Co. Ltd. and Daewoo Shipbuilding and Marine Engineering Co. Ltd., in accordance with the fleet standing on its web site.

Seadrill additionally expects to choose contract changes with purchasers over the approaching months, Wullf stated.

“Our customers are asking for concessions,” he stated. “We haven’t agreed with anyone yet on adjustments. The dialog is ongoing.”

Dividend Decision

Seadrill suspended dividends in November, and has since been adopted by payout cuts at Transocean and Ensco.

“It was the right decision to make,” stated Wullf, a Danish citizen who joined Seadrill in 2009 from AP Moeller Maersk A/S, earlier than changing into CEO in 2013. “That was a difficult decision for us. We spent a lot of time on it.”

Suspending the dividend will permit Seadrill to save lots of $2 billion a yr, the corporate stated in November. That cash can contribute to acquisitions of distressed rivals as soon as valuations have fallen additional and the market begins enhancing, Seadrill has stated. The firm then intends to “swipe the table,” Chief Financial Officer Rune Magnus Lundetrae stated earlier this month.

“Things are still overpriced,” stated Nordea’s Kvernland. “Seadrill will survive the cycle simply because they have assets that have a remaining lifetime of 25 years on average. They may not have to scrap a single rig during this cycle. But they could need to refinance.”

Norway’s largest financial institution, DNB ASA, stated final week it’s keen to contemplate serving to driller purchasers by the present turmoil by deferring mortgage installments. Seadrill, which has stated it has a $4.8 billion funding want by 2016, isn’t speaking with any banks about delaying funds, Wullf stated.

“We want to pay down our debt,” he stated. “That’s extremely important to us.”