Billionaire Fredriksen’s Rosneft deal may still suffer sanctions

Billionaire Fredriksen’s Rosneft deal may still suffer sanctions

MIKAEL HOLTER

HAMILTON, Bermuda (Bloomberg) -- Seadrill and North Atlantic Drilling, the rig companies controlled by billionaire John Fredriksen, said sanctions against Russia may still affect a $4.25 billion deal with 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 CFO 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 $1 billion stake in North Atlantic in return for about 150 onshore rigs and a cash payment. The second part of the agreement, stated 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.

Doubts Emerge

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 Sept. 10. 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.

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 U.S., would be “a disadvantage,” North Atlantic’s CEO Alf Ragner Loevdal said in a separate interview. 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.”