Offshore drilling focus to pay off for Saipem following new $325 million award

Following its recent decision to focus on its core oil and gas drilling activities, Italy’s oilfield services contractor Saipem has been awarded an offshore drilling contract worth $325 million by Norway’s oil and gas company Aker BP for a campaign offshore Norway.

The operations are expected to start from the end of Q4 2022, upon the termination of the works in which Scarabeo 8 is currently engaged, Saipem informed on Thursday.

As a reminder, the rig was last year hired by Wintershall Dea to complete its Nova field drilling campaign following an incident with the previous rig, which forced the oil company to terminate the contract. Saipem’s rig was expected to start operations under this contract in the fourth quarter of 2021 and drill six wells with options for additional wells.

Scarabeo 8 is a Saipem semi-submersible drilling rig able to work in harsh environments. It is a dual derrick deepwater unit with a dynamic positioning system and with enhanced mooring capabilities.

The contract duration with Aker BP is three years for an approximate value of $325 million. The contract also includes the option of two one-year extensions and encompasses potential upsides among which a performance bonus scheme and a mechanism of rate adjustment to market rates from the third year onward.

Saipem previously worked successfully with Aker BP in 2018. The Italian company noted that this new long-term contract further consolidates the collaboration with the Norwegian company, also including the use of innovative solutions to deliver increasingly efficient, safe and environmentally focused operations.

Saipem has been having some financial woes lately. Following a revision of its financial backlog, the company issued a profit warning earlier this year, citing significant deterioration of some projects’ margins due to the protracted Covid-19 pandemic and cost increases of raw materials and logistics. As a result, the financial statements in 2021 are expected to show a loss for more than one-third of the company’s equity.

In an effort to solve some of these issues, the company in February overhauled its management team to reinforce the execution capabilities for the company projects and to complete the ongoing strategic review.

Later on, the company worked out a plan for the period between 2022 and 2025, which includes cutting costs, increasing focus on offshore E&C and drilling, being more selective in projects, and repositioning on low-risk offshore wind business in the next two years.