(STO) Statoil ASA to Pay $2.47 Billion for New Rigs

Oil giant Statoil ASA (STO) has awarded a contract worth $2.47 billion to Norway’s Songa Offshore. Per the deal terms, Songa will build two category D semi-submersible rigs for use on Norwegian Continental Shelf (NCS) with specified terms of 8 years each that could extend to 20 years.

With a capability to work in water depths of 100–500 meters, the new rigs can drill to a depth of 8500 meters. These rigs, which are scheduled for delivery in 2014, are 20% more productive than the conventional ones.

Statoil contemplated several competitive bids during the procurement process but eventually finalized on Songo. Statoil was in need of a rig capable of working on complex and mature fields.

The conceptualization phase took one year and another three years will be taken for implementation. This pact gives Statoil the option to confirm the construction of two more similar rigs, with a prospect to take an ownership position in them. This new order is an effort by the company to renew its fleet. It also plans to increase production in the NCS region.

The contract for the two newbuild category D rigs was awarded by Statoil on behalf of the other participants in the Troll license. Troll is an anchor of Norwegian gas production and one of the largest oil fields on NCS.

The new rigs will be directly pressed into service on the NCS after they are delivered from Daewoo Shipbuilding & Marine Engineering Co., Ltd in South Korea, in the first quarter and third quarter of 2014. Mobilization of the rigs (from the yard in South-Korea to the North Sea) would take three months.

Statoil has a Zacks #4 Rank, which translates into a Sell rating for a period of one to three months. However, we are Neutral on the company for the long term. The company faces tough competition from Total S.A. (TOT) and BP Plc (BP).

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