Sevan reduces rig dayrate to avoid contract termination

Sevan Drilling, a Norway-based drilling contractor, had a disappointing third quarter when it comes to its rig fleet utilization. The company that owns three ultra-deepwater drilling rigs of cylindrical shape, reported its technical utilization of 64% versus 93% in the third quarter 2013.

In a webcast, presenting the third quarter results, Scott McReaken, Sevan Drilling CEO, explained that the main driver for this low performance was the Sevan Louisiana rig being out of service in August and September due to damages to the subsea equipment.

He said that other two Sevan rigs, Sevan Brasil and Sevan Driller, operating in Brazil for Petrobras, also experienced downtime of 36 days in total due to repairs on risers.

Seadrill to the rescue

The Sevan Louisiana drilling rig, operating for LLOG in the U.S. Gulf of Mexico, achieved technical utilization 30.6 percent.

The downtime for the rig started on July 30, and was initially caused by a need to pull and repair the blow out preventer.

During this operation it was revealed that the central equipment in the rig’s tension system had been damaged and that it, in addition, had material quality deficiencies.

The direct acting tensioners (“DATs”) installed at the yard had to be replaced to rectify this.

New DATs were sourced from Seadrill’s spare parts pool and installed in parallel with the other repairs. Sevan Louisiana resumed operations on October 7, 2014 following a total of 71.9 days downtime due to these events.

Contract termination

The extent of the third quarter downtime for the rig provided LLOG a right to terminate the drilling contract.

Sevan Drilling CEO said that while LLOG was cooperative in getting the Sevan Louisiana back to work, the possibility of termination left Sevan with no choice but to agree a reduced dayrate for the rig.

Under the new agreement with LLOG, the termination has been avoided by setting a dayrate of $350.000.

Additionaly, Sevan Drilling and LLOG agreed a one year contract extension for the Sevan Louisiana, keeping the rig with LLOG until May 2018. LLOG has an option to cancel the extension but it has to notifiy Sevan Drilling one year in advance prior to May 2016. Also, Sevan has the ability to market and contract the rig through May 2016.

The extended contract term for the Sevan Louisiana increases Sevan Drilling’s revenue backlog by USD 127.7 million and contract coverage into 2018.

“Sevan now has $1.2 billion revenue backlog, and we are fully contracted through mid 2016,” McReaken said.

In the third quarter 2014, Sevan Drilling reported a net loss of $21.1 million compared to net loss of $15.7 million in the third quarter last year. Operating revenue was $69.8 million versus $64.3 million in Q3 2013.