Investing

Seahawk have entered a Memorandum of Understanding with Essar Oilfield Services India Ltd for the sale of the Seahawk 2505 for $14,550,000 plus some minor fees for training on the rig.

The sale is contingent upon Essar Oilfield Services winning tender MR/DS/MAT/CT/RIGS/CH/MAT-FLOATER/49(308)/2010 /P46JC10007.

Seahawk 2505 is Seahawk's 11th best rig of 20 according to my ranking criteria. It's close enough to call it the median rig. On that basis it's reasonable to multiply $14,550,000 by 20 to get a gross asset value of HAWK. To get the net assets we then need to subtract net liabilities, excluding rigs, of around 45M. This indicates net assets of 246M or $20.75 per share. This makes the same assumptions about liabilities made in previous posts (i.e. a liquidation so the deferred tax liability would not be realized).

The situation is actually better than this. The tender is for rigs in the PEL/ML ( Petroleum Exploration License/ Mining License) zone in India. Therefore Essar are going to incur costs in excess of $5M (based on generic mobilization costs mentioned by HAWK in their UBS presentation). Had the rig been in India it would have sold for at least $5M more. HAWK obviously don't want to sell their rigs to competitors in the US or Mexican GOM (and neither do HERO). They have created an opportunity to sell a rig that won't compete.

The deal is contingent on Essar winning the tender (which is interestingly only for a 150M mat supported jackup). If this happens then HAWK will get some much needed cash and will reduce their cash burn. If the deal fails then the offer highlights the true rig values in the current market. Based on HAWK's costs of 25k per day and a rig rate of 45k per day (current GOM rates), Essar would pay off the rig entirely during the 3 year contract, inclusive of mobilization costs. A 3 year payback is certainly indicative of a fair to cheap price, though I don't know what rate they are going to propose (their costs should be lower than HAWK's as they can use a foreign crew and will have lower insurance costs etc).

I suspect this announcement reduces the likelihood that HAWK are going to purchase a foreign rig package with debt.

Interestingly there may be opportunities for HAWK to relocate their mat supported rigs out of the GOM, albeit at a substantial cost. Finally, in a liquidation it shows that a median rig price of $20M for rigs sold to a local buyer (think a mixture of PEMEX and other GOM drillers) is possible. The deal price supports HAWK's claim that $20M per rig is supported by an independent appraisal from Basso for a net liquidation value of around $30 per share.