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Seadrill CEO Says No ‘Major Loss’ for West Atlas Rig (Update2)
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By Vibeke Laroi

Nov. 5 (Bloomberg) -- Seadrill Ltd., a Norwegian oil-rig company, doesn’t expect to have a “major loss” related to its West Atlas drilling rig, badly damaged in a fire off the coast of Australia following the country’s third-worst oil spill.

“There won’t be a major loss related to this because the rig is well insured,” Chief Executive Officer Alf Thorkildsen said in a phone interview today, without elaborating.

The West Atlas rig was insured for $200 million by a syndicate of companies in London and in Norway, Thorkildsen said, without naming them. The unit has a book value of $143 million, he added.

West Atlas caught fire on Nov. 1 along with PTT Exploration & Production Plc’s Montara wellhead platform. The blaze broke out during attempts to plug a leak by pumping heavy mud into the well, according to PTTEP Australasia, a unit of PTT Exploration & Production. The leak has now been stopped and the fire extinguished.

Australia has set up a commission to investigate the spill, after as many as 30,000 barrels leaked into the Timor Sea. WWF- Australia said the spill was an environmental disaster and reported seeing dolphins, birds and sea turtles swimming in the oil slick.

Asked whether Seadrill is liable in any way for the incident, Thorkildsen said: “I don’t believe so, but it’s too early to say.”

Too Early

Seadrill spokeswoman Hilde Waaler said Nov. 2 that the rig was a “total wreck.” Thorkildsen said today it’s too early to say whether the rig can be used again. “We have to assess the damage and can’t say until we go on board,” he said.

The jack-up rig, the type most commonly used in shallower waters, was leased at a rate of $255,000 a day to PTT, according to Seadrill’s Web site. It’s capable of drilling in water depths of 400 feet.

The West Atlas, built in 2007, does not have “a lot of debt,” Thorkildsen said, without being more specific. He also declined to say whether the insurance would be paid in cash.

“If the insurance is paid in cash, it could strengthen the company’s cash flow,” said Truls Olsen, an analyst at Fearnley Fonds ASA who has a “buy” rating on the stock.

“I think the loss from the rig will have a relatively neutral affect on earnings,” he said, adding that any write down would come in the fourth quarter.

Lukas Daul, an Oslo-based analyst at SEB Enskilda who recommends buying Seadrill stock, said the impact on earnings from the rig loss is likely to be “very marginal.”

Daul doesn’t believe Seadrill will be held liable. “Seadrill had nothing to do with it. The rig just happened to be at the wrong place at the wrong time,” he said.

Seadrill reports third-quarter earnings today. A conference call with analysts is scheduled for 6 p.m. local time.

To contact the reporter on this story: Vibeke Laroi in Oslo at [e-mail]
Last Updated: November 5, 2009 10:29 EST