The oil services space is set to get a new addition as Shelf Drilling – a spin out from sector giant Transocean (RIG:NYSE) – confirms speculation it will list in London. The company, currently in the hands of three private equity firms - Castle Harlan, Champ and Lime Rock, is targeting a $500 million IPO with gross proceeds of $250 million being used to pay down debt. As at the end of March net borrowings stood at $704 million.
Investors' interest may be sparked by its dividend-paying intentions with the group expecting to pay out between 40-60% of its net income on a semi-annual basis. The plan is to pay a third at the interim stage and the remainder alongside the finals. It declared a $22.5 million dividend for the first quarter of this year and intends to declare an interim dividend of $17.5 million in the second quarter (expected to be paid in September 2014), and a year-end dividend of $80 million in respect of the six months to the end of December 2014 (expected to be paid in May 2015).
Shelf was formed in 2012 with the purchase of more than three dozen jack up rigs from Transocean for roughly $1 billion. Jack up rigs have legs which sit on the ocean floor when in use with the drilling equipment 'jacked up' above the water's surface. Shelf's rigs are primarily used in development and workover (maintenance) activity on producing assets in shallow water (up to 400 feet) across four key regions: the Middle East, north Africa and Mediterranean; southeast Asia, India and West Africa. The company says the market for its services should remain robust, noting the breakeven oil price in its operating areas ranges from $15 per barrel to $40 per barrel.
Its chief executive is David Mullen, the former boss of pipeline products specialist Wellstream, which was also listed in London until its $1.3 billion takeover by General Electric (GE:NYSE). Shelf is chaired by former BAE Systems (BA.) chairman and ex-BP (BP.) executive Richard Oliver.
The company generated adjusted Ebitda (earnings before interest, tax, depreciation and amortisation) of $468 million from adjusted revenues of $1.2 billion in 2013. It has won $1.8 billion worth of new orders this year taking the order book to $3.4 billion, with an average remaining duration of 758 days per contracted rig and an average daily rate of $119,800. Last month (27 May) it confirmed a $370 million contract with rig refurbishment and construction play Lamprell (LAM) for the delivery two new jack-up vessels.