Boston, MA 09/11/2014 (wallstreetpr) – Seadrill Ltd (NYSE:SDRL) and North Atlantic Drilling Ltd. (NYSE:NADL) are the two rig companies that are controlled by John Fredriksen. At the moment, the cause of concern for the rig companies is sanctions against Russian that can adversely affect the $4.25 billion deal signed between North Atlantic and OAO Rosneft. It becomes all more worrying when the company is already restricted from using the funding opportunities in the U.S.
The $4.25 billion deal between North Atlantic Drilling Ltd. (NYSE:NADL) and Rosneft covers five-year contracts for six offshore rigs. The deal was finalized in July, just few days before the EU posed deeper sanctions against Russia. At that time, Seadrill Ltd (NYSE:SDRL) and North Atlantic assumed that the sanctions will not hurt the contracts. However, now the possibility of breaching of sanctions seems high.
The broader picture
The contracts are just a part of broader framework agreement. As per the deal, Rosneft will acquire a $1 billion interest in North Atlantic Drilling Ltd. (NYSE:NADL). The deal will be paid in the form of 150 onshore rigs and cash payment. It has forced Fredriksen to evaluate the impact of escalating sanctions on the deal. Fredriksen has got 23% of the stake in Seadrill.
The emerging problems
Seadrill Ltd (NYSE:SDRL) and North Atlantic offshore-rig contracts are raising doubts whether they will be in compliance with the posed sanctions. The existing sanctions don’t now allow the export of technology for Arctic in Russia. It restricts the deepwater & shale-oil exploration and production in Russia. As per the sanctions, picture looks muddy.
The silver lining
The silver lining in the case is that there are no immediate rig contracts expiring in the current year. It immunizes Seadrill and North Atlantic from the existing problem and weakness of the market. Some of the contracts of the rig company start as late as 2017. Moreover, management said that if the number of contracts is restricted to five in 2015, Seadrill Ltd (NYSE:SDRL) will be in a better position to deal with the problems.