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Offshore drilling giant – Transocean Ltd. (RIG - Analyst Report) has been awarded a contract by Royal Dutch Shell plc (RDS.A - Analyst Report) for four new drillships. The 10 year agreement is valued at $7.6 billion.

Transocean will spend around $3 billion (excluding interest) for new rigs, which will be built by South Korea's Daewoo Shipbuilding and Marine Engineering. The ships are designed to drill into water depths of up to 12,000 feet and drill wells up to 40,000 feet.

The first ultra-deepwater drillship is anticipated to be delivered by mid 2015 and others at intervals of six months from thereon.

The drillships will have enhanced well completion capability and deckload capacity of 23,000 metric tons. Additionally, each rig will be equipped with two 15,000 psi blowout preventers, expected to reduce customer non-productive time between wells.

Management at Transocean opines that this deal will add to their revenue backlog and upgrade their ultra-deepwater fleet. It will also improve their fleet mix and expand the company's connection with a key customer.

The new rigs will modernize Shell’s fleet and help it in its search for oil and gas in deeper waters.

Transocean is the industry leader in deep sea drilling. The company’s state-of-the-art mobile offshore drilling fleets worldwide can function in most challenging environments, such as the North Sea.

Royal Dutch Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects and increased capital expenditure should help volume growth in the long run.

Both, Shell and Transocean, currently hold a Zacks #3 Rank (short-term Hold rating). We also maintain a long-term Neutral recommendation on the stocks.

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