March 27, 2019
Expectation is that at least two rig operators present offers for the company in judicial recovery
Prices below the minimum value of US $ 554 million, few proponents and many conditions. This is the view of the market in relation to the sale of the four rigs of Sete Brasil – Arpoador, Guarapari, Urca and Frade – this wednesday when the offers for acquisition of the units will be delivered.
The expectation is that at least the Norwegian Seadrill and Borr Drilling will present proposals. Transcocean and Ensco have evaluated the business opportunity, but their boards will only decide throughout the day.
Another possible candidate is Odfjell, a company that, like Seadrill, was scheduled to participate in the original project of Sete Brasil, as operator of part of the units.
Among the possible interested parties, only Borr Drilling and Odfjell do not currently have contracts in Brazil. As the bidding requires deep-water experience, Borr Drilling has an agreement with the Brazilian company Etesco for the operation of the units. Under the negotiated strategy, Borr Drilling would take over the entire investment, while Etesco, which would also operate some of the original rigs, would have the deal.
Brazil’s Ocyan, QGOG Constellation and Petroserv – others that had signed operating contracts with Sete in the original format of the deal – decided not to dispute the purchase of the units, as well as Diamond Offshore.
A few weeks ago, Borr Drilling discussed with QGOG Costellation about an eventual business partnership, but Brazilian company was not interested. A source told BE Petróleo that the group is currently focused on securing contracts for its own units, but that there is no restriction on its possible future participation.
In the market, Seadrill and Borr Drilling are considered favorites, with Transocean running on the outside. Seadrill’s appetite for the deal is directly related to the group’s interest in strengthening the asset portfolio in Brazil, currently restricted to only two contracts: one with Petrobras, which expires this year, and another with Equinor. Borr Drilling aims to guarantee their entry into the country.
The opening of the envelopes presented today will be made only on Thursday (28/3). Both stages will be held in the courtroom of the 3rd Business Court of Rio de Janeiro, where the processes the judicial recovery process of Sete Brasil is being negotiated.
Proposals will be opened in the presence of the creditors of Sete Brasil. As of Tuesday night (3/26) there was no definition as to whether the legal representatives of the participants could be present. The idea, according to one source involved in the process, is to restrict participation only to creditors in order to reduce public exposure to the maximum.
Sete Brasil and Alvarez & Marsal Advogados, advisers on the sale of the rigs, will have 15 days to evaluate the proposals and disclose the result. The offer may be paid in installments, provided that the last installment is paid before delivery of the unit.
If proposals received come below the minimum price of US $ 554 million, as stipulated in the notice, creditors will have to decide whether or not to accept the offered value. In the possibility of no interest in price , the creditors will discuss new strategy to be adopted, which, legally, may even include the agenda of a new tender.
The trend is that even without reaching the minimum ceiling, the operation will be approved, unless the values offered are negligible. There is a consensus that the process represents the last chance for those involved to regain some of the money lost in the project.
Debt and Investments
The debt of Sete Brasil amounts to about US $ 5 billion, and the projection is that only 10% of this amount will be paid off. The Group’s list of creditors involves 22 companies – 12 shareholders (BTG Pactual, Luce, EIG Global Energy Partners, Lakeshore, Previ, Petros, Funcef, Valia and FI-FGTS, Santander, Bradesco and Petrobras), five creditor banks and five shipyards .
The minimum value stipulated in the call notice is intended exclusively for the payment of Sete Brasil. In addition to the amount destined to the acquisition of the units, there are also the investments that will have to be made to guarantee the completion of the works of the rigs. Market estimates project a total price around US $ 1.25 billion, which will account for the part of Sete Brazil.
The acquisition of the units guarantees the buyer a ten-year contract with Petrobras, with a daily rate of US $ 299 thousand, well above the contractual values currently practiced. The operation involves two drill ships (Arpoador and Guarapari) and two semi-submersible (Urca and Frade), under construction at the Jurong and Brasfels shipyards, respectively.
The notice determines that companies can only quote for at least two units from the same yard. The equipments are designed to operate in water depth of 3 thousand meters.
If on the commercial side the sale of the rigs represents an attractive business, from a legal point of view the operation is seen with reservation. The problems of Sete Brasil, which faces a process of judicial recovery and had its name involved in the corruption scandals of Operation Lava Jato, are seen as a threat to the operation, with no possibility of forecasting the outcomes.
Another risk factor is attributed to the fact that Petrobras can cancel the charter of the units after one year of operation, if it is proven poor performance of the equipment or the operating company.
Although the notice stipulates that the first rig will be completed in 2019 and the others in subsequent years, it is assumed that the schedule will not be fulfilled. As Sete Brasil should complete the negotiations at the end of April, the market already predicts that the first two units will be completed only in 2020.
Created in 2010 to meet the demand for Petrobras pre-salt drill rigs, Sete Brasil signed charter contracts with Petrobras to build 28 drill rigs. Some of the equipment even started to be built. The approval of the company’s recovery plan is conditional on the sale of the units.
Source: BE Petroleum