Seadrill Ltd. and North Atlantic Drilling, the rig companies controlled by billionaire John Fredriksen, said sanctions against Russia may still affect a $4.25billion deal with OAO Rosneft.
North Atlantic and Rosneft rushed to sign five-year contracts for six offshore rigs at the end of July, just days before the European Union broadened sanctions against Russia to target its energy sector directly. Seadrill, which owns 70% of Hamilton, Bermuda-based North Atlantic, said at the time the contracts appeared not to be affected by the restrictions.
“We have to be open” to the possibility that the contracts could be in breach of existing sanctions, Seadrill chief financial officer Rune Magnus Lundetrae said in an interview in Oslo.
“It’s not game over yet. It’s terribly difficult to give a very good answer.”
The offshore-rig contracts are part of a broader framework agreement that will also see Rosneft take over a $1billion stake in North Atlantic in return for about 150 onshore rigs and a cash payment. The second part of the agreement, announced last month, showed Fredriksen, who owns 23% of Seadrill, is willing to bet on Russia just as other companies are reconsidering their exposure amid escalating sanctions over the country’s role in the Ukraine conflict.
Seadrill slid 1.4% to 207.8 kroner in Oslo, the lowest level since May 7. The stock has declined more than 10% in six consecutive days of losses.
Doubts over whether the offshore-rig contracts would be in compliance with existing sanctions appeared as details became available last month, Lundetrae said in an interview yesterday. The EU sanctions, which have been followed by Norway, put restrictions on the export of technology for Arctic, deepwater and shale-oil exploration and production in Russia.
“It’s not necessarily looking brighter,” Lundetrae said.
Still, the fact that some of the contracts start as late as 2017 and none earlier than 2015 reduces the risk for North Atlantic and Seadrill, Lundetrae said. “We would be more uncomfortable if we had five contracts starting in January 2015,” he said.
The US and the EU are poised to increase sanctions, potentially halting billions of dollars of oil exploration in Russia, officials said yesterday, speaking on condition of anonymity. EU ambassadors will meet again today to discuss the new bans, which have been delayed to give them time to assess a cease-fire between pro-Russian rebels and Ukrainian forces.
The arrival of Seadrill’s West Alpha rig to drill a well in the Kara Sea for Exxon Mobil Corp. and Rosneft, as well as the new contracts signed by North Atlantic, angered US and EU officials.
Deeper sanctions planned against Russia and Rosneft, affecting the company’s access to European financial markets after it was already restricted from funding opportunities in the US, would be “a disadvantage,” North Atlantic’s chief executive officer Alf Ragner Loevdal said in a separate interview yesterday. Still, the need to finance the contracts with North Atlantic won’t appear “for several years,” he said.
“We believe that there will be solutions,” he said. “I think time will work for us.”
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