Transocean to quit shallow-water rig industry it invented

Oil drilling ship Oil drilling ship

Transocean Ltd. agreed to sell most of its shallow-water drilling fleet for $1.05 billion as part of the company’s exit from the market for rigs propped up on steel legs that it created more than 50 years ago.

Shelf Drilling International Holdings Ltd., a newly formed company owned by private equity investors and management, will pay $855 million in cash and $195 million in preferred shares for 38 rigs that can drill in seas shallower than about 400 feet (122 meters), Vernier, Switzerland-based Transocean said today statement.

Chief Executive Officer Steven L. Newman is shedding shallow-water rigs to focus on deep-water and specialized drilling gear that commands higher rates from oil producers. Transocean vessels that can operate in 10,000 feet of water and drill several miles into the Earth can garner more than $400,000 a day, four times the going rate for so-called jackup rigs that have retractable legs that can reach the seafloor.

Transocean expects to recognize a “significant” loss on the sale, according to a filing with the U.S. Securities and Exchange Commission. The company valued the assets at about $1.4 billion at the end of the second quarter.

The company plans to sell its seven remaining standard jackups and exit that business in the third quarter.

Transocean fell 0.8 percent to $47.21 at 10 a.m. in New York. The stock has declined 13 percent in the past year.

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The deal is expected to be completed in the last three months of this year. Shelf Drilling, whose owners include Castle Harlan Inc., Champ Private Equity and Lime Rock Partners, will seek to offer shallow-water services globally, according to the statement.

Transocean’s stock has tumbled 49 percent since its Deepwater Horizon rig exploded in April 2010 during a blowout at BP Plc’s Macondo well in the Gulf of Mexico. The accident killed 11 workers and triggered the worst U.S. marine oil spill.

Transocean built the oil industry’s first jackup rig in the 1950s, Newman told analysts and investors at a Barclays Plc- sponsored energy conference in New York on Sept. 5.

Separately, Transocean yesterday named Esa Ikaeheimonen, a former executive at Seadrill Ltd. and Royal Dutch Shell Plc, to replace Gregory Cauthen as chief financial officer.

Bloomberg News

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