Sembcorp Marine has sold the semi-submersible Petrorig 1 to US-listed offshore driller Diamond Offshore Services Company, related to Diamond Offshore Drilling, Inc for US$460mn, excluding certain customer-specific equipment, with Diamond said to be the highest bidder for the rig.

The sale by private treaty attracted five parties, all big established offshore drillers, including Stena Drilling, Noble Drilling, Seadrill and a Brazilian driller, and of course Diamond Offshore, according to reports by offshore news wire sources. This clearly indicates that there are offshore operators who are keen to buy new generation deepwater drilling units, and have the funds in place for these purchases. We believe the group is likely to be well able to cover the outstanding costs incurred in building the rig, as Jurong Shipyard (the SMM subsidiary building the rig) had already collected 50% of the total costs for the building of the semi-submersible from Petromena, prior to the unit filing for bankruptcy as its bondholders were unable to raise funds to refinance the investment.

Jurong Shipyard was contracted by Petromena to build the Friede & Goldman (F&G) Ex-D semi-submersible in 2005 at US$423mn with delivery set for 2Q 2009. However, Petromena could not raise funds for the final instalment, and had instead claimed the rig was "incomplete and inoperable". JSL had already established a track record with the design, having delivered the first rig to Seadrill early last year. SMM cancelled the contract with Petromena’s bondholders and then proceeded to sell the rig.

In our view, news of the concluded sale is positive for SMM as it lifts the overhang on the stock, on concerns that the group may have had to shoulder losses from the unpaid expenses for building and completing the rig. We expect that SMM should still be able to book a profit from the project, and the action taken by the offshore rigbuilder to sell the asset due to unresolved payment delays may encourage other potential parties/customers to actively increase efforts to raise funds needed to finance progress payments, or risk losing a big chunk of their investments.