Fascinating structure for contract details on the 5 premium jackup contract that Seadrill indicated it was working to close on with Qatar's 100% subsidary Gulf Drilling International.
To refresh, the timeline for the firm periods was previously announced by GDI as:
Two jack-ups, each to start a 3 year firm contract in 1Q2020, plus
A third jack-up to start a 2 year firm contract in 2Q2020, plus
A fifth and fifth jack-up rig to start a 3 year firm contract in 3Q2020
I couldn't figure out HOW Seadrill would come up with the 5 premium jack-ups that GDI wanted; now we know. They will use 2 jack-ups already owned by Seadrill (West Castor (2013 -400') and West Telesto (2013-400') AND they will bare-board charter the other three jack-ups ... thus avoiding having to raise new equity or take on new debt to acquire the other 3 jack-ups. This allows Seadrill to grow its top line revenue and grow its income, within the limitations of its BK imposed capital structure that effectively prevents owning new rigs. This is somewhat akin to what Seadrill is doing with semi-subs; chartering in newbuilds from related party Northern Drilling; OSE:NODL
Also, Seadrill can now continue to charter its only other premium jackups to Saudi Aramco, the AOD II and AOD III, both also are 2013 400' drilling rigs; after having announced in March 2019 a 3 year extension for the AOD I to Saudi Aramco to Jun2022 at $73k/d but unusually not mentioning these other two AOD rigs that are currently contracted to Dec2019 with Saudi Aramco.
This 5 rig contract represents almost 14 rig-years deal with GDI/Qatar, that starts in 2020 is priced out at $656 Mn per today's press release, which works out to a whopping average day-rate of $128k/d per jack-up. Wow. And they also announced an option that amounts to a further 14 years of rig time on these 5 jack-ups, and Seadrill also announced the price of that option, $700 million ... meaning a day-rate of $140k. Double wow.
This will move the market for Seadrill shares. First, it removed any doubt whether GDI will charter up to 5 Jack-ups. Second, it set a new, much increased, leading edge market rate for premium jack-ups. Third, it sets an implied rate that Seadrill will command when it negotiates with Saudi Aramco to extend the AODII and AOD III contracts ... the Saudi's historically have done 3 year extensions. Four, it shows that Seadrill has the capacity to grow its top line revenue, bottom line income, and EBITDA significantly by creatively using bare-boat charters of stranded newbuild rigs that shipyards are eager to deal on. Fifth, it provides a strong, positive signal to Seadrill bank creditors ... and by extension to Seadrill Partners bank creditors, who have loans out to both publicly traded entities. T.D.