[UNITED STATES] July 8, 2008, 12:27PM Transocean sets drillship record: $652,000 a day

Transocean, the world's largest offshore oil driller, received a five-year contract to lease its Deepwater Pathfinder drillship to Italy's Eni SpA for a record $652,000 a day.

The contract for drilling mostly in the Gulf of Mexico may generate revenue of $1.19 billion over the five-year term, Houston-based Transocean said today in a statement. It begins in March 2010 after the end of a three-month assignment off Ivory Coast for Moscow-based OAO Lukoil.

The rate Rome-based Eni agreed to pay is $22,000 a day higher than Lukoil's $630,000-a-day contract, according to filings by Transocean. Operating a deepwater rig costs Transocean about $100,000 a day, said Katherine Ahn, an analyst at Gabelli & Co. in Rye, New York.

"It's definitely a record," Omar Nokta, head of maritime research at Dahlman Rose & Co. in New York, said in a telephone interview. "It stems from the fact that Transocean is one of the only operators with capacity available, and the oil companies are now demanding longer-term contracts."

Rates for offshore rigs are escalating worldwide as oil prices that reached a record $145.85 a barrel on July 3 spur exploration for untapped reserves, said Nokta, who rates Transocean shares a "buy" and doesn't own any.

"We think this reinforces our bullish thesis," Tom Curran, an analyst at Wachovia Capital Markets LLC, said in a note to clients, referring to Transocean's record lease rate. Drillers that are likely to benefit, in addition to Transocean, include Atwood Oceanics, Diamond Offshore Drilling and Pride International, he said.

The Brazilian government in May suspended auctions of offshore oil leases until at least 2009 because of the scarcity of available rigs to drill exploratory wells.

Eni, which increased reserves by 3.5 percent in 2007 after three years of declines, paid $114 million in March for the right to explore 32 offshore parcels in the Gulf of Mexico. The company, Italy's largest oil producer, is the sole participant in 15 of the licenses and has partners in the other 17.

Transocean owns one-fifth of the world's offshore rigs, according to Gabelli's Ahn. She estimates the company's per- share profit from continuing operations will jump 29 percent this year to $14.80 and sales will more than double to $12.87 billion.

"Transocean will be a major beneficiary of continued strength in the deepwater market, where interim demand remains clearly in excess of supply, which we believe will continue to drive day rates and term contracts," Ahn said in a July 2 note to clients.

Transocean fell 23 cents to $140.37 at 10:57 a.m. in New York Stock Exchange composite trading. It was the best performance among the five companies in the S&P 500 Oil & Gas Drilling Index, which dropped 2.1 percent as oil and gas futures tumbled in New York. Eni fell 59 cents, or 2.5 percent, to 22.86 euros in Milan.

The Deepwater Pathfinder is a 10-year-old South Korean- built vessel that can sleep a crew of 130 and drill 20,000 feet beneath the sea floor in waters 10,000 feet deep. The ship is more than twice the length of two American football fields and includes a 170-foot-tall derrick.

The Pathfinder contract was Eni's second lease agreement for a Transocean vessel in a week. On July 2, the company signed a two-year contract for the Transocean Marianas for about $564,000 a day.

The Marianas is a semi-submersible rig, which means it has chambers that are partially flooded with seawater to stabilize the vessel.

Source: Bloomberg

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