BW Group has purchased a nine-year-old ultradeepwater drill rig for conversion into an offshore gas processing platform, paying just $14 million for the acquisition - barely more than scrap value.
BW will refit the rig with gas processing equipment and deploy it to the Kudu field off Namibia, where it will be used for exporting gas back to shore for a power-generation project. Its output will feed a new powerplant at Oranjemund, an isolated diamond-mining town on the South African border.
Kudu has proven reserves of 1.3 trillion cubic feet of natural gas, with additional potential for 3-9 trillion more. It has been explored on and off since 1974 but never developed due to low regional demand for gas. That is changing, according to BW. The company hopes that replacing imported electrical power with domestic power produced with natural gas will improve Namibia`s power security and reduce its carbon footprint.
"The revised development concept offers tangible financial, schedule and environmental benefits. The re-use of existing facilities also supports a substantial reduction in field development-related greenhouse gas emissions compared to a newbuild," said Carl Krogh Arnet, CEO of BW Energy. "We have consequently decided to take advantage of the availability of this high-quality semi at an attractive price."
Previous rig owner Aquadrill wants to see the Leo removed from the oversupplied offshore drilling market, and it placed stringent contractual terms forbidding the use of the unit for further drilling. If BW Group decides not to strip the rig of its derrick and deploys it for drilling wells instead, it will owe Aquadrill $50,000 per day of drilling activity. In addition, if it resells the rig to another company for use in drilling within the next two years, it will owe Aquadrill a share of the profits from the sale.
At the time of its delivery in 2012 - two years before the oil market crash of 2014 - the Leo (exname West Leo) was a very valuable asset. In 2013, then-owner Seadrill valued the ultradeepwater harsh-environment rig at $1.25 billion in a related-party sale.
Shortly after its delivery, West Leo went on contract with Tullow Oil for a drilling campaign off Ghana. That contract ended in October 2016, when Tullow declared force majeure and terminated the agreement due to a government drilling moratorium. Seadrill won a court case against Tullow in connection with the early termination and secured a $250 million penalty.