Big John' Is About To Register Northern Drilling... What Does It Mean For Seadrill?

More than their assets. Share value in the minus. Advice sell fast and sell when can as the bottom lid of Seadrill as company is going to fall off very soon. This is going to be the biggest bankruptcy of oil and gas drilling contractor and Ensco International For Seadrill and their shareholders only very Big trouble and worthless shares as Seadrill liabilities are is not that far off also , maybe 1 or 2 years away if this continue getting bad in the oil industry

Summary

John Fredriksen is planning to register a brand new offshore drilling company in Norway called Northern Drilling.

Can we draw a parallel with what John Fredriksen did with Frontline back in 2012?

John Fredriksen is the most powerful piece of the puzzle, and it is not a sound idea to dismiss his influence at this stage of the game.M. John Fredriksen. Courtesy: Bloomberg

This article is an update of my preceding article on Seadrill published on March 15, 2017.

Investment Thesis:

As a reminder, Seadrill (NYSE:SDRL) is undergoing a $14 billion restructuring of debt and liabilities. According to Per Wulff, CEO, those negotiations have taken longer than expected.

As a reminder, Per Wullf announced last year that the company was about to announce "some sort of agreement" with the 42 banks involved with the company. It was first expected in early January but has been pushed now to April.

M. Mark Morris, CFO, said in the 3Q'16 conference call the following:

Our objective is and remains to have a comprehensive package that will provide a long-term solution to address our capital structure needs while positioning us for a recovery in the industry...

We have a strong preference for a consensual solution, but given the number of parties involved, we have also developed contingency plans should the need arise. We are confident about our business and our recovery for this sector.

Again, Mark Morris indicated in the 4Q'16 conference call:

Regarding our restructuring, our objective is to find a solution that bridges us to a recovery in the sector, achieves a sustainable capital structure, and protects value for our stakeholders. We've been engaged in extensive discussions with our lenders and potential new investors, including Hemen, regarding the terms of a comprehensive restructuring.

These discussions have also included the ad hoc committee of bondholders. While the ad hoc committee is not presently restricted, they have indicated a willingness to become restricted again in the future.

We currently believe that material additional amendments to the terms of the proposed bank amendments will be necessary to raise the new capital. Feedback from stakeholders and potential new investors also indicates that a comprehensive and consensual agreement will likely require conversion of our bonds to equity.

Under such circumstances, the new capital raise and any resulting debt conversion would likely result in substantial dilution to our shareholders and potential losses for other financial stakeholders.

It's ultimately going to come down to a large issuance of equity and Mark Morris is clear about that. The question is how many shares and what will happen to SDRL?

Seadrill said in February that it would be challenging to meet an April 30 deadline for talks with banks and bondholders to yield a solution.

The company alluded that it could be forced to file chapter 11. However, it is possible that Seadrill may ask for more time to complete a deal without being forced to file for bankruptcy protection?

Meanwhile, John Fredriksen is planning to register a brand new offshore drilling company in Norway, as early as next week according to Bloomberg. Northern Drilling is the name of the new company.

Northern Drilling, which is purely an investment company and not a rig operator, will be registered on the Norwegian over-the-counter market -- making shares available to securities dealers -- and a full public listing on the Oslo stock exchange is planned for later this year, a person familiar with the matter said Friday. Fredriksen has raised about $230 million in capital for the company, about half of which he contributed himself, the person said.

Northern Drilling has been set up after John Fredriksen bought up to two completed semi-submersible drilling rigs from South Korea's Hyundai Heavy Industries (HHI), using his private Cyprus company, Seatankers.

1. The 6th generation Semi-submersible West Mira, firm deal to buy the rig. John Fredriksen bought the rig for $365 million as part of an settlement. This is approximately 44% discount from the original $650 million rig cost.
2. Also John Fredriksen secured an option to buy the Semi-submersible Bollsta Dolphin for about $400 million. Option runs till 2019. The rig was also cancelled by Fred Olsen Energy due to delays. The yard will be responsible for stacking the rig in the meantime.

Bloomberg explained:

Northern Drilling will leave commercial and technical management of any rigs it owns to Seadrill, which had originally ordered the West Mira rig before canceling the contract. The objective is for Northern Drilling to sell its rigs at a profit in the future, and the intention is to give Seadrill the opportunity to match any future offer to acquire them, the person said.

Can we draw a parallel with what John Fredriksen did with Frontline?

On September 2012, John Frederiksen was also buying as he navigated the worst shipping market since the 70's. He invested $7 billion in 18 rigs and $4 billion in about four dozen new vessels to transport liquefied natural gas, gasoline, propane and other fuels.

John Frederiksen said in 2012, in a rare interview:

Basically, I'm a trader, I think as we are sitting here we are very close to the bottom of the market, and I like to be a buyer at the bottom. This is the game.

He could have said these exact same words recently as well.

Frontline's shares took off, returning an average of 70% every year from 1999 to 2007.

Unfortunately, the wheel of fortune turned against Frontline and in December 2011, John Fredriksen rescued his tanker company by splitting it up in two and shifting 11 of his best ships and $666 million in debt, into a new firm called Frontline 2012 Ltd.

Finally, On July 1, 2015, Frontline Ltd. (NYSE:FRO) and Frontline 2012 Ltd. agree to merge. Pursuant to the Merger Agreement, one share in Frontline 2012 Ltd., gave the holder the right to receive 2.55 shares in Frontline.

In December 2016, FRO closed a $100 million shares offering.

Due to very strong demand, the Company's largest shareholder, Hemen Holding Ltd. ("Hemen"), has agreed to be allocated 1,342,281 New Shares in the Offering, corresponding to 10 per cent of the Offering. Hemen will own an aggregate of 82,145,703 shares in the Company upon completion of the Offering, equalling approximately 48.4 per cent of the Company's shares and votes.

Hemen holding (John Fredriksen) owns also 119,097,583 shares or 24.15% of SDRL.

Finally Bloomberg said:

Fredriksen's move to also comes just months after his former top adviser, Tor Olav Troim, with whom he had a falling out in 2014, set up his own rig company, Borr Drilling Ltd. Borr has bought two jack-up rigs, registered in the OTC system and is reported to be close to buying 15 more machines from Transocean Ltd. for $1.2 billion.

I commented recently on the Borr Drilling - Transocean (NYSE:RIG) potential deal. Please click here.

Conclusion:

John Fredriksen is the most powerful piece of the puzzle, and it is not a sound idea to dismiss his influence at this stage of the game.

M. Morris said:

We have a strong preference for a consensual solution, but given the number of parties involved, we have also developed contingency plans should the need arise.

It leaves the door open to many different alternatives, and I am certain that "Big John" will surprise again.