SeaDrill Ltd. Subsidiary Inks Deal with Rosneft - Analyst Blog

On May 26, offshore drilling firm SeaDrill Ltd. SDRL announced that its majority owned subsidiary, North Atlantic Drilling Ltd. (NADL) has entered into an Investment and Co-operation Agreement with the Russian integrated oil major, Rosneft.

This announcement prompted a positive response from investors, as shares of NADL jumped 13.5% to close at $9.65 on May 27. The stock touched an intraday high of $9.70, which also marked a new 52-week high for the company.

The agreement permits NADL to explore onshore and offshore growth opportunities in the Russian drilling market at least through 2022. Also, Rosneft will be entitled to acquire a substantial equity stake in the firm. However, SeaDrill will still remain the majority stakeholder.

A number of long-term contracts are due to be signed as part of this agreement. Moreover, up to 9 offshore rigs of NADL are to be used by Rosneft for a total commitment of 35 rig years. The companies intend to close the transaction in the latter half of the year.

SeaDrill stated that its subsidiary has already been awarded a contract to drill the initial two wells in the Kara Sea during 2014 and 2015, as part of the joint venture between Rosneft and Exxon Mobil Corp. XOM.

Notably, NADL's management expects this agreement to be a growth opportunity for the company as it would enable exploration of the attractive Russian drilling market.

Hamilton, Bermuda-based SeaDrill Ltd. primarily provides services related to offshore drilling activities to customers worldwide. Currently, the company is operating roughly 69 drilling units.

The subsidiary, NADL is a harsh environment drilling company with a fleet of 9 drilling rigs that include 5 semi-submersibles, 3 jackup rigs and a drillship. The company was listed in the NYSE in Jan 2014. SeaDrill currently owns 70% stake in the company.

SeaDrill Ltd. has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the U.S. equity market over the next one to three months.

Meanwhile, one can consider a better-ranked player in the oil and gas drilling industry like Pioneer Energy Services Corp. PES, which currently sports a Zacks Rank #1 (Strong Buy).

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