Pemex inks a five-year, $850MM ultra-deepwater rig contract with Seadrill

By Phaedra Friend Troy

Mexico's state run Pemex has signed a final agreement with Seadrill's (NYSE:SDRL) affiliate Sea Dragon de Mexico for the ultra-deepwater West Pegasus semisubmersible drilling rig.

The five-year rig contract has a fixed operating dayrate for the first two years, and then the dayrate will be adjusted annually based on market conditions. Excluding the mobilization fee, the estimated contract value for the ultra-deepwater rig is approximately US $850 million, assuming the dayrate stays constant over the five-year term.

"This is Seadrill's first assignment for Pemex, and it presents an exciting opportunity to develop a strong relationship with one of the largest national oil companies in the world, as well as strengthening our position in the Gulf of Mexico," said Alf Thorkildsen, CEO of Seadrill. "This contract further underlines the value of our recent acquisition of the Seadragon units, adding significant earnings visibility at what we believe is competitive terms and conditions."

A newly constructed drilling rig, the West Pegasus was recently delivered from the Jurong Shipyard and has proceeded mobilization to Mexico. The rig is capable of drilling in waters up to 10,000 feet deep.

The West Pegasus is scheduled to begin drilling in the third quarter of 2011.

Although hydrocarbons are very likely to exist on the Mexican side of the Gulf, Pemex lacks experience in deepwater and ultra-deepwater exploration and production.

With production declining for more than a decade in Mexico, Pemex has recently opened exploration and development to international firms for the first time since 1938. Although the first licensing round involves four onshore blocks, Pemex intends to offer offshore opportunities in the future.

Eager to improve production rates, the company has stated that it expects to begin deepwater production by 2015 and has committed to spend $269 billion by 2019 to increase production.

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