Fredriksen said to delay Rosneft deal decision on sanctions

Fredriksen said to delay Rosneft deal decision on sanctions

MIKAEL HOLTER

HAMILTON, Bermuda (Bloomberg) -- North Atlantic Drilling Ltd., the rig company controlled by billionaire John Fredriksen, will extend a deadline to complete deals with Russia’s OAO Rosneft that include $4.25 billion in contracts amid concern over trade sanctions, a person familiar with discussions said.

The deadline for breaking the accords will be extended from Nov. 10, said the person, asking not to be named because the talks are private. North Atlantic, a unit of Seadrill Ltd., is considering alternative assignments for two rigs due to start operating for Rosneft next year, the person said.

North Atlantic and Rosneft rushed to sign five-year contracts for five offshore rigs at the end of July, just days before the European Union broadened sanctions against Russia to target its energy industry over the country’s role in the conflict in Ukraine. Seadrill, which owns 70% of Hamilton, Bermuda-based North Atlantic, said at the time the contracts appeared not to be affected and later indicated they may be at risk.

The offshore contracts are part of a broader agreement that will see Rosneft take a 30% stake in North Atlantic in return for about 150 onshore rigs and cash. That accord’s break-right period will also be extended, according to the person.

An official at Rosneft and North Atlantic CEO Alf Ragnar Lovdal both declined to comment.

Seadrill Shares

Seadrill fell 2.4% to 141.9 kroner at 12:51 p.m. in Oslo, erasing an earlier gain of as much as 3.7%, after Transocean Ltd., another offshore rig company, said it would book $2.8 billion of writedowns. Seadrill has declined 47% this year as oil companies rein in spending, creating over-supply in the rig market, and on investor concerns about the Rosneft deal.

Rosneft retreated 0.3% to 238.56 rubles in Moscow.

The U.S. and the EU in September moved to deepen sanctions against Russia, restricting the export of technology for Arctic, deep-water and shale oil exploration and production and limiting the ability of companies including Rosneft to tap western capital markets.

Exxon Mobil Corp., the world’s biggest listed oil company, was forced to halt a venture with Rosneft following a billion-barrel discovery in the Arctic Kara Sea. That find was made with North Atlantic’s West Alpha rig.

Order Backlog

The offshore contracts made up 65% of North Atlantic’s $6.3 billion order backlog and almost 20% of Seadrill’s on a consolidated basis as of September, according to the companies.

North Atlantic could be forced to sell new shares to raise capital if the deal with Rosneft falls through, Nordea Markets analyst Janne Kvernland said in an Oct. 16 report. A delay or cancellation of the Rosneft deal could also weigh on the Norwegian rig market as idle rigs would boost capacity, she said.

The extension of the break-right period may actually be positive for North Atlantic and Seadrill, Kvernland said in an email Nov. 7.

“It means it’s still probable that there will be a deal, which in turn increases earnings visibility for both companies,” she said. “However, it’s still unclear when it will fall into place.”