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Curious coincidence involving Shell, Iran, Noble Corp and $2.16 billion

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FROM A REGULAR CONTRIBUTOR

The former owners of the Frontier drilling company sold their rigs to Noble for $2.16 billion in 2010. Given that their fleet of five vessels consisted of ancient rust buckets which were fit only for the scrapyard, this has always seemed like an inordinately large sum. The five vessels had been acquired by Frontier for about $100 million. The only client of Frontier was Shell. See http://www.reuters.com/article/2010/06/28/us-noblecorp-idUSTRE65R2C520100628 . (See below)

Noble operated two rigs for Shell in Alaska (Discoverer and Kulluk) during the disastrous 2012 drilling campaign. In spite of their performance in 2012, Noble will once again be operating the Discoverer (now over 50 years old) during the upcoming drilling campaign. Discoverer is one of the rust buckets that Noble acquired from Frontier.  

It is a curious coincidence that we discover today that the figure of $2.16 billion corresponds precisely to the amount owed by Shell to the Iranians. 

UPDATED FROM THE SAME SOURCE:

Pure Speculation

Let us suppose that Shell was under pressure from the Iranians to pay their due, and sought to find a way to do so.

What better arms-length transaction than a process along the lines of:
(1) Set up a privately held company called Frontier, whose shareholders are uncertain
(2) Frontier buys some cheap hardware. Hardware doesn’t come much cheaper than 2nd generation rigs that are 35 years old such as the Transocean Explorer, the last rig stacked in Invergordon and about to head out of Cromarty Firth for the scrap yard. Rename the rig the Frontier Driller, and then rename it again to Noble Driller and suddenly an ancient 1976 Aker H3 with a water depth capability of 1250ft becomes a 5000ft ultra deep water rig. And for just $15 million (including fresh paint) you have a rig which on paper appears comparable to a $500 million 5th generation rig. Magic! Or take a 1973 Pelican class drillship, call it the Frontier Phoenix, and market it as a DP deep water vessel. Even if it can’t hold its position in flat calm water off Brunei, the analysts won’t notice. And the analysts will believe you when you say a 1973 Pelican is just the same as Transocean’s latest $600 million sixth generation vessel. They will never see them side by side or realise that the sixth generation vessel is actually about ten times larger
(3) Shell awards contracts to Frontier at grossly inflated rates to lease the hardware (of course these contracts can easily be cancelled when the rigs don’t work as advertised, just as they were in Brunei)
(4) Get Noble to buy Frontier at a grossly inflated price of $2.16 billion in order to take over the contracts
(5) Suddenly the phantom shareholders of Frontier are $2.16 billion richer. Who are they? Where did the money really go? Iran?
(6) Noble are paid $415000/day for the Noble Driller, so the monthly lease rate is roughly what Frontier paid Transocean for the rig.
(7) Noble get their $2.16 billion back from Shell through the inflated day rates
(8) The authorities around the world reimburse Shell for the inflated day rates under cost recovery and tax rebates
(9) If the money ultimately went to Iran (or offshore Iranian accounts), Shell has managed to successfully work around sanctions, pay Iran, and the IRS has provided much of the money!

You can be sure of Shell…

FURTHER UPDATE 26 JUNE 2015 FROM THE SAME SOURCE

Drilling contractors lease their rigs to oil companies on the basis of a daily rental rate. This is known as the dayrate, and applies from the time the rig is hired (mobilised) until it is released (demobilised).

The dayrate paid by Shell for the Noble Phoenix (formerly the Frontier Phoenix) was $306,000. Shell paid Noble $55 million “compensation” when they cancelled the contract of the Noble Phoenix.

The JOIDES Resolution (formerly the Sedco-BP 471) is a DP drillship of similar age and capabilities to the Noble Phoenix (day rate $306,000) and the Noble Discoverer (day rate $363,000).

The day rate of the JOIDES Resolution is $86,000.

The key difference is that the contract for the JOIDES Resolution involves neither Shell nor Noble. Why are the Shell-Noble dayrates four times higher than the rate for comparable vessels in the market?

RELATED

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Noble Corp to buy Frontier Drilling for $2.16 billion

NEW YORK | BY MATT DAILY: Mon 28 Jun, 2010

Offshore oil and gas driller Noble Corp (NE.N) said it would buy Norway’s privately held Frontier Drilling for $2.16 billion, adding seven vessels to its fleet even as much of the Gulf of Mexico remains effectively closed to new operations.

The deal, plus new drilling contracts with Royal Dutch Shell (RDSa.L) that will add $4 billion to Noble’s backlog of work, indicate the industry is preparing to increase offshore exploration even as BP Plc’s (BP.L) well continues to pour oil into the Gulf in the worst spill in U.S. history.

Shares of Noble, which owns the second-largest fleet of offshore drilling rigs behind Transocean Ltd RIGN.S, rose 3.3 percent.

“This acquisition is a highly complementary extension of our mid- and deepwater presence and positions us for additional growth in new market segments that can provide further opportunities for Noble and our customers,” Chief Executive Officer David Williams said in a statement.

New deepwater drilling in the Gulf has come to a stop because of the spill at BP’s Macondo well, which has been spewing oil since its April blowout.

A U.S. judge blocked the federal government’s moratorium on new drilling in waters deeper than 500 feet, but the U.S. Interior Department has said it plans to release new rules blocking drilling as it crafts regulations designed to increase safety.

Noble said it had resolved the status of its units contracted to Shell in the Gulf of Mexico and would allow the oil giant to suspend contracts at a reduced rate. The contracts will resume at their full terms and normal rates once drilling resumes, Noble said.

Noble also negotiated a three-year extension on its Noble Jim Thompson rig operating in the Gulf at a reduced rate of $336,200 per day.

That is significantly lower than the mid-$400,000 daily rate that rigs were bringing in before the spill, according to Argus Research analyst Phil Weiss.

ALL-CASH DEAL

Williams said Noble remains on the lookout for new chances to expand its fleet, and that the spill in the Gulf had not affected the Frontier deal.

“For us, no, I don’t think it had a big impact. It may have for the other parties, but for us it was complicating noise,” he told a conference call.

Noble’s all-cash acquisition of Frontier, officially known as FDR Holdings Ltd, will add to cash flow immediately and to earnings from early 2011, the company said. It expects the purchase to close in July.

Carlyle Group and Riverstone Holdings are investors in Frontier.

Noble said it would fund the acquisition with a combination of cash, a drawdown on its bank credit facility, and an $800 million bridge loan.

The deal will add about $3.2 billion in gross contract backlog over, Noble said.

Frontier, which is domiciled in Norway and headquartered in Houston, is building two ultra-deepwater drillships designed to operate in Arctic waters under a partnership with Shell.

In addition, Frontier owns five other vessels, including the Frontier Driller, which is operating in the Gulf of Mexico.

Noble was advised by Simmons & Co International as well as Barclays Capital (BARC.L) and SunTrust Robinson Humphrey Inc (STI.N) in the transaction with FDR. Goldman, Sachs & Co (GS.N) acted as financial advisor to Frontier.

Noble shares rose 3.3 percent to $30.25 in afternoon trading on the New York Stock Exchange.

(Additional reporting by Michael Erman and Megan Davies in New York and Arup Roychoudhury in Bangalore; Editing by John Wallace and Lisa Von Ahn)

SOURCE

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1 Comment on “Curious coincidence involving Shell, Iran, Noble Corp and $2.16 billion”

  1. #1 dean loren
    on Jul 6th, 2015 at 19:28

    2.6 Billion pay to play Shell to Iran
    also mirrors Leviathan (really Levantian) oil fields
    now developed which Greece is holding on to their
    percentage of the oil fields saying no to IMF

    great analysis in prior articles
    King Salman is listening to you

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