Billion-Dollar Sino-Norwegian Oil Rig Deal In The Works

China Oilfield Services Ltd., a unit of the nation's third-biggest crude oil producer, has agreed to buy Norway's Awilco Offshore ASA for 12.7 billion NOK (2.49 billion USD) to increase its rig fleet by 47%. China Oilfield will pay 85 NOK a share in cash for the operator of drilling rigs, according to a statement released on July 7. The offer by the unit of China National Offshore Oil Corp. is 19% more than the closing price of Awilco's shares on July 4. The statement caused Awilco to surge by a record 15% in Oslo.

The Chinese purchase of Awilco's fleet comes after average rental rates for jack-up rigs, the most common type for shallow- water drilling, quadrupled in four years to about 200,000 USD a day, according to ODS-Petrodata. New exploration is being driven by crude oil's surge to a record 145.85 USD a barrel this month.

"Awilco's units are modern and basically delivered or coming near to it, so you have instantaneous cash flow," Gavin Strachan, an ODS-Petrodata research consultant in Scotland, said in a telephone interview. "You make more money by buying newly delivered rigs than by putting in an order for a new rig, because cash flow will be very significant over the next couple of years. If you put in an order for an offshore rig today, you'll generally get it delivered in 2011."

The Awilco purchase would immediately boost China Oilfield's drilling fleet from 15 to 22 units, according to the Beijing-based company itself. Awilco said the combined fleet following the acquisition would be 34 operated platforms, including those under construction. Awilco has five jack-up units in operation, with three more to be delivered before mid-2009, according to a China Oilfield presentation. It also has three semi-submersible platforms on order and options to build another two. The global fleet of offshore rigs currently operating totals 691, of which 418, or 60%, are jack-up rigs, Strachan said. Transocean Inc. is the world's largest oil and natural-gas driller, with 138 mobile offshore drilling units and another eight under construction.

The Norwegian company's equipment and technology for offshore drilling are "a good strategic fit for China Oilfield Services"' the companies declared in a joint statement. China Oilfield said Awilco operates in areas including Norway, Australia, Vietnam, Saudi Arabia, the U.K. and Libya, and has secured contracts with companies including BP and Repsol.

Full story in English