Maersk Drilling, the oil rig unit of Denmark’s largest company, may put its expansion on hold because the cost of building platforms is rising and takeovers are too expensive. “We see newbuilding orders being at a fairly high price and we will certainly not go out and order something tomorrow or in the near future,” Chief Executive Officer Claus V. Hemmingsen said yesterday in a telephone interview. “We would have to watch the market, they’re very expensive currently.” Maersk Drilling, which has about 3 percent of the offshore market, has a five year target to become the world’s fifth- largest owner of rigs able to drill the deepest offshore wells. It’s spending $3.8 billion to build four deepwater drillships and two so-called ultra-harsh jack-up rigs, and plans to order at least eight rigs by 2016, Hemmingsen said. Maersk has also kept an eye out for acquisition opportunities. “I would say that while valuations may have been low, the end purchase prices are not particularly low,” the executive said. “We have been following the markets and we have not found that it was the right thing for us to pursue” corporate acquisitions at this time, he said. Rising oil prices have increased exploration budgets and added demand for rigs able to operate in harsh and deepwater environments such as the Arctic and Brazil. Stricter rules after the Deepwater Horizon rig exploded and sank in the U.S. Gulf of Mexico have also increased demand for more modern rigs, boosting costs for new rigs and fueling merger and acquisitions. Transocean Deal Transocean Ltd. (RIG) this week agreed to buy Aker Drilling ASA for almost twice its market value at $1.46 billion, to expand its ultra-deepwater rig fleet. That followed Ensco Plc’s bid in February for Pride International Inc., which was valued at $8.47 billion including debt, a 24 percent premium. “We are very firm, that as we do look at candidates or even assets, it would have to be something that fits our high- end sophisticated fleet,” Hemmingsen said. “It’s not important for us to gain size, it’s important to get the right equipment. Our primary view is that we will grow organically.” Maersk Drilling, a unit of Copenhagen-based A.P. Moeller- Maersk A/S, has brought the average age of its fleet down to eight years, the world’s second-lowest after Seadrill Ltd. (SDRL) That compares to an industry average of 22 years, Hemmingsen said. Four Drillships The company ordered the four drillships from Samsung Heavy Industries Co. Ltd. and two ultra-harsh environment jack-ups from Keppel FELS Ltd. and has the option to order two more drillships with Samsung at the same price as the first four, Hemmingsen said. Maersk expects to order its next eight rigs in the ultra-deepwater, semi-submersible and drillship segments once the market conditions permit, Hemmingsen said. Prices to build new rigs “have been fairly stable over the last four years, but with a tendency to rise over the last six months,” Hemmingsen said. “They’ve probably risen 10-12 percent in the last six months.” The unit’s second-quarter profit surged to $223 million from $175 million a year earlier helped by an 18 percent gain in sales as high oil prices spurred demand for modern rigs, Maersk said on Aug. 17. Maersk Drilling’s 26 rigs includes 6 ultra-harsh environment jack-ups, 6 further jack-ups, 4 semi-submersibles and 10 drilling barge rigs. Jack-up rigs have extendable legs while semi-subs are rigs that float and are partly filled with water for stability. ‘Full Coverage’ The company has “almost full contract coverage” for the remainder of the year, according to its second-quarter statement, and has over 70 percent of its available capacity covered for 2012, Hemmingsen said. Demand for rigs remain high and is expected to be boosted in Norway, where Maersk is the biggest operator of jack-ups, by Statoil ASA (STL)’s announcement this week that the Aldous Major South and Avaldsnes discoveries in the North Sea are linked, creating the biggest offshore oil find made this year. The “giant” discovery may help prolong Norway’s oil output, which has declined for 10 consecutive years. “It’s great news for the industry,” Hemmingsen said. “We do expect that it will lead to increased activity and also increased activity in the segment that we are targeting, which is the jack-up segment up to 150 meters of water depth.” Demand from regions such as Norway, Brazil, West Africa and the Gulf of Mexico are supporting day rates, both for ultra- deepwater and for jack-up rigs. For ultra-deepwater rigs, “we’ve had an average of about $450,000 for a while, and we wouldn’t expect it to go below that,” Hemmingsen said. “We’re not so optimistic that we see a rapid increase, a dramatic increase either, but probably a stable level of $450-550,000 would be to expected going forward in the short-term.” -- Editors: Will Kennedy, Alex Devine To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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