UK driller Ensco has been awarded three drillship contracts offshore West Africa, representing an aggregate three years of contracted term and more than six additional years of options.
Ensco Chief Executive Officer and President, Carl Trowell , said, “We contracted Ensco DS-4, a rig that was previously preservation stacked, for a two-year term and reactivated the rig on time and within our cost estimates. We also secured a one-year contract for Ensco DS-10, our final newbuild drillship, which is among the most technologically advanced rigs in the global fleet.”
Trowell concluded, “We continue to see offshore drillers with track records of safe and efficient operations as well as financial strength win a disproportionate amount of new work and these contracts are examples of our recent success in capitalizing on this trend. Additionally, we believe that this new work positions us well for follow-on opportunities, benefiting future utilization for our rig fleet.”
The contracts
According to the driller’s statement on Tuesday, Ensco DS-4 is expected to start a two-year contract with Chevron offshore Nigeria in August 2017. The contract also includes a priced customer option for one additional year of work. Ensco recently reactivated the rig following a period during which the rig was preservation stacked in Tenerife and reactivation expenses are expected to total $28 million. In addition, $15 million of capital upgrades were added to the rig and are anticipated to benefit the asset over its remaining useful life.
Furthermore, Ensco DS-10 is scheduled to start work with Shell offshore Nigeria in the first quarter of 2018. The contract duration is for one year and includes five one-year priced customer options. As a result of winning this contract, the rig’s delivery is expected to be accelerated into third quarter 2017 from first quarter 2019. To remind, the delivery of the DS-10 drillship was postponed in early 2017 by two years to March 31, 2019. The rig was built by South Korea’s Samsung Heavy Industries.
After the delivery, Ensco DS-10 will undergo a period of acceptance testing before mobilizing to Nigeria to begin its maiden contract. Remaining capital expenditures associated with the rig are expected to total approximately $190 million inclusive of a final milestone payment to the shipyard, an upgrade to add a second seven-ram blowout preventer, acceptance testing, capitalized interest and mobilization.
Finally, Ensco DS-7 is contracted to Total until November 2017. Since November 2016, the rig has been idle in Tenerife earning a standby rate following early termination of its original contract, which was also with Total. Ensco DS-7 is now scheduled to mobilize to Ivory Coast to drill one well beginning in August 2017 that is expected to take 60 days to complete. Additionally, Total has a priced option for one further well.
As a result of these new contracts, Ensco said that its contract drilling expense for second quarter 2017 is expected to be approximately $282 million after adjusting for a $10 million settlement of a previously disclosed legal contingency, slightly higher than the prior guidance of $270 million to $280 million, or $292 million on an unadjusted basis.
Anticipated capital expenditures are now expected to total approximately $350 million for the nine month period from second quarter 2017 through fourth quarter 2017. This capital expenditure estimate includes approximately $240 million for new rig construction, inclusive of approximately $29 million of capitalized interest, and approximately $110 million for rig enhancements and minor upgrades and improvements.