Norway's Sevan Marine finalised the initial public offering of its oil drilling unit at 8 crowns ($1.52) a share, less than half the price it had hoped for and at the expense of raising money for itself. Debt-laden Sevan Marine set the IPO price on Thursday at the low end of a range that had been twice reduced due to poor demand, after dropping plans to sell most of its shares in Sevan Drilling.
By expanding the number of new shares on offer in the oil drilling company, Sevan Marine managed to draw in about as much capital as originally intended - $362.6 million - but diluted its own remaining stake. Sevan Drilling will use the IPO proceeds to fund rig expansion.
"Sevan Drilling is fully financed and we (Sevan Drilling) will be able to pursue the strategy that was planned, including the purchase of two newbuilds," Sevan Marine CEO Jan Erik Tveteraas told Reuters. "It has been a long and winding road but it feels good to be here."
The transaction is the least successful in a series of recently announced rig-sector spin-offs, IPOs and private placements by Norwegian companies - including Seadrill, Aker Drilling and Odfjell Drilling - hoping to cash in on an expected surge in demand as oil companies chase high oil and gas prices. Late on Thursday Tveteraas was to hand control of parent company Sevan Marine, which he helped found in 2001, to petroleum industry veteran Carl Lieungh.
Sevan Marine will become a pure-play floating production services provider with four cylindrically shaped platforms under contract. Its share price has fallen more than 40 percent since the IPO process began last month, and fell another 5.7 percent on Thursday to 3.765 crowns at 1327 GMT while the main Oslo Stock Exchange index was down 0.1 percent.
Tveteraas is to run Sevan Drilling when it begins trading on the secondary Oslo Axess exchange on May 3 with two cylindrical drilling rigs under contract with Brazil's Petrobras.
He said the IPO proceeds will go toward building two new drill rigs at COSCO Shipyard in China and insisted the low first-day share price would have "no effect" on prospects.
"The outlook is very good for the company since we have a combination of two long-term contracts providing solid cash flow and the two newbuilds at a favourable construction price," he said. "That means we will be able to compete for contracts in the growing ultra-deepwater markets of Brazil, West Africa and the US Gulf of Mexico."
He conceded that the parent company faced a less liquid near-term future than expected a month ago. Back then the indicated offer price was 16 to 21 crowns per share and Sevan Marine hoped to get $245 million for itself in a secondary sale of most of its 96 million Sevan Drilling shares.
Later, Sevan Marine lowered its ambition for the secondary sale to "at least $100 million", and on Wednesday night the company decided to drop it altogether. "Because of the new price range we decided not to sell any shares," Tveteraas said. "The valuation of the new company made it easier for us to sit on the investment." He said the proceeds would have served as "a capital base" to strengthen Sevan Marine.
"Now we don't have the cash but we have something that is second best," he said, referring to a 25 percent holding in Sevan Drilling, which Sevan Marine promised to hold for a year. "We will see what happens after that," he said. "At the moment we are comfortable owning those shares." Terra Markets analyst Egle Domataite said Sevan Marine would be left with some $660 million in debt at the end of 2011. "That is a lot," she said, "and it runs the risk that if there is some downtime in their operations they may have trouble meeting their liabilities." She called the spin-off an "attractive investment" at 8 crowns: "Sevan Drilling will be listed at a cheap price and I see the outlook for the ultradeep rig market as good."