Norway: Aker Drilling to Increase Operations in Growth Markets

Aker Drilling intensifies its operations in strong growth markets, enters into Letter of Intent for the building of two drillships with options for additional two ships, aims to secure new capital and applies for listing on Oslo Stock Exchange – with Aker as minority shareholder in an independent drilling company with an offensive strategy.

– Aker Drilling expands its activities in deep water operations. These are growing offshore markets characterised by an increasing demand for drilling units with well-known, advanced technology. Aker Drilling ASA aims to secure up to USD 600 million in equity through an initial public offering (IPO). The company has applied for listing on Oslo Stock Exchange, says president and CEO Øyvind Eriksen in Aker ASA.

A Letter of Intent (LOI) has been signed with Daewoo Shipbuilding & Marine Engineering Co. Ltd (DSME) for the delivery of two advanced ultra-deepwater drillships, and the option for delivery of two additional drillships. The price per ship, including spare parts, drilling equipment, construction follow up, and activities up to “ready to drill” is estimated at USD 600 million.

– Aker Drilling has a first class operational organisation and two harsh environment rigs equipped for deepwater drilling with stable operations on the Norwegian Continental Shelf. The LOI for the two drillships provides us with the opportunity to participate in interesting growth areas for drilling operations in ultra-deep waters in areas such as Brazil, the Gulf of Mexico and Western Africa. The company has already commenced the work to establish an experienced construction follow-up team at the yard and an international, competent operational organisation, says Eriksen.

Strong growth in demand Aker Drilling currently has 440 employees, and the company has a position in the market for drilling operations in areas with deep water and harsh environments. The deepwater market is the fastest growing of all offshore markets, but due to technological, operational and experience issues, it also has the highest barriers to entry for new competitors.

Half of the global oil and gas discoveries are made in ultradeep waters, according to Infield. In 2015, 13 per cent of the offshore production will come from ultradeep oil fields, compared to 3.5 per cent in 2010. The rig market participants agree that future exploration will increase in deep waters and harsh environments. In the coming years, this will lead to an increase in demand for advanced drilling units with well-known technologies.

Aker Drilling will focus its activities in deep water and harsh environments. The drillships will be valuable additions to the company‘s fleet, and the technology used in ultra-deep areas is known and efficient. DSME has built – and will build – several ships of this type. The project execution risk for delivery on schedule and budget is deemed low.

Efficient operations and solid order backlog

The company‘s two rigs, Aker Barents and Aker Spitsbergen, currently generate a significant cash flow from stable operations. In operation, the two rigs have an EBITDA margin of approximately 60 per cent. The rigs are on long term leases, and their total order backlog at the end of 2010 was approximately USD 1.2 billion.

– Aker Drilling has a solid cash flow and a strong dividend capacity, states Eriksen.

The two rigs have delivered a positive development with stable and safe

operations throughout 2010 and the beginning of 2011. In the fourth quarter of 2010, Aker Barents and Aker Spitsbergen had a total paid uptime of more than 95 per cent.

Letter of Intent with DSME

Aker Drilling Offshore Services Public Ltd in Cyprus, a wholly owned subsidiary of Aker Drilling ASA, has signed the LOI with DSME in South Korea for the delivery of the two drillships in the fourth quarter of 2013. 25 per cent of the contract value is due at the signing of the final contract agreement at the end of February 2011, and 75 per cent will be paid on delivery.

The options with DSME give Aker Drilling the right to have the third and fourth drillships delivered in the second quarter of 2014 and the first quarter of 2015 respectively.

The ships can drill wells up to 12000 metres deep, at water depths of up to 3600 metres.

– With our two existing rigs and the new drillships we will have state-of-the- art units for safe, efficient and environmentally sound operations. Aker Drilling has a very competent operational organisation for the Norwegian

Continental Shelf. This team will continue its work with focus on first class, safe operations for our Norwegian clients, while we are about to establish an equally professional organisation for international markets, built on the

capabilities of our Norwegian operations team. This provides us with a solid foundation for further profitable growth, says CEO Geir Sjøberg in Aker Drilling.

Share issue of up to USD 600 million

Aker Drilling intends to carry out a share issue of up to USD 600 million in February 2011 through an IPO. The planned subscription period is expected to commence on 7 February 2011, and close on 18 February 2011. Institutional and private investors will be invited to invest in the drilling company. Aker will retain a strong position, but will reduce its ownership to less than 50 per cent, in order to enable the new Aker Drilling to develop as an independent company listed on Oslo Stock Exchange with a liquid trade of the shares. Aker will thus become a minority shareholder, and this will also be reflected in the new board, which will have a majority of members elected by the shareholders who are independent from Aker.

In connection with the financing of the new drillships and the IPO, Aker Drilling will carry out refinancing of the company. Aker Drilling is currently in discussions with a bank syndicate in order to increase the drilling

company‘s bank loans from USD 605 million to USD 900 million. The increase of USD 295 million will be used to repay debt to Aker ASA. Furthermore, the company aims to replace its 3 year NOK 1.5 billion bond loan with a longer-term bond loan at the same value, but without the guarantee from Aker ASA. The refinancing is in accordance with previously announced plans to further develop Aker‘s role as equity investor and make Aker Drilling an independent company without any other financial commitments to its largest owner.

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Source: Aker Drilling, January  20, 2011;