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Norwegian operator Statoil ASA (STO - Analyst Report) is contemplating ordering additional Category D semi-submersible rigs for operations off Norway. The rigs will be specifically designed according to its needs and help counter the lack of capacity as well as escalating costs.

Since July 2011, Statoil has placed order for four new customized semi-submersible rigs, scheduled for delivery in 2014 and 2015. Each rig is likely to cost $570 million and has been chartered for eight-years. Statoil further holds four three-year options for the rigs. The newbuilds are likely to fetch dayrates in the range of $415,000 - $448,000.

Per the government-commissioned report issued in August 2012, drilling costs in Norway have climbed twice over between 2000 and 2010 and is currently about 45% higher than in the neighboring U.K.

The report also mentioned that Norway can tackle this issue only if it simplifies rules for offshore rigs and lower labor costs. It can also be done by encouraging means of enhancing oil yield, which has reduced by more than 50% in the last ten years.

Statoil stated that the rigs required for operating in the rough region of Norway – having stringent regulations – needs to be equipped with advanced technology and safety equipments.

However, the rising demand for such rigs in Norway will be faced with a capacity crunch. Of the 17 midwater rigs operational in Norway by the end of 2012, only 5 units are likely to be available before 2015.

Although several deep-water units are under construction and scheduled for delivery over the next few years, these are not considered to be feasible for midwater work as their higher technalities make them more expensive to function. These have led to a rise in dayrates for many of the older Norwegian rigs.

Thus, Statoil may choose to implement an ownership model on any future Category-D orders, under which the rigs would be held within the license partnership, in line with the strategy already adopted for newbuild Category J jack-ups for which construction and management contracts are expected to be awarded later in 2012.

Statoil, which recently contracted Schlumberger Limited (SLB - Analyst Report) for electric wireline logging services on the NCS, holds a Zacks #2 Rank (short-term Buy rating). Longer term, we maintain our Neutral recommendation.
 

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