Oil services – shallow depths

John Fredriksen is cashing out. That statement would send the oil tanker industry, where the Norwegian billionaire is the world’s highest-profile shipowner, into a spin. In the oil services sector, where his SeaDrill company is a dominant participant, the implications are a bit less dramatic. Mr Fredriksen’s $3bn deal to sell Seadrill’s tender rig business to Malaysia’s SapuraKencana is more a repositioning than an exit. Selling the production-focused tender rigs will enable SeaDrill to build more vessels for deepwater exploration and development, where the oil and gas industry’s biggest challenges lie.

The deal looks transformative for SapuraKencana, the product of a merger in May of two Malaysian oil services groups. The price is hefty. The acquisition cost, which Citi estimates at $1.7bn before capital expenditure and debt, will lift the Malaysian group’s ratio of debt to earnings before interest, tax, depreciation and amortisation from 4.5 to 5, though it should fall back to its starting level in a couple of years because of the strong earnings momentum of the rigs being acquired (most are in Asian waters). It gives SapuraKencana more heft in its backyard, however, by lifting it to first place in the global tender rig market.

SeaDrill, the listed company Mr Fredriksen controls, will continue to have skin in the game, doubling its stake in SapuraKencana to 13 per cent; he will also join its board. The Norwegian company should also net about $1.2bn in cash from the transaction. That will allow it to cut debt, though there are apparently no plans for a special dividend.

The shift from production-focused rigs to exploration and development fits SeaDrill’s ambitions in deepwater drilling. Moreover, oil services is a sector that both depends on other people’s spending plans and caters to their every whim. Mr Fredriksen’s move could be a signal that things are about to change.

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