Northern Drilling announced that it has agreed to extend the Cobalt Explorer option for approximately four months against a down-payment of $12 million. The $12 million will be deducted against the first instalment of $105 million should the option be exercised. Following this amended agreement the Cobalt Explorer option is summarised as follows:
December 2018: $12 million down payment
March/April 2019: $93 million down payment if option is exercised
At delivery 2021 (or earlier at NODL’s option): $245 million final instalment
The total price for Cobalt Explorer is unchanged of $350 million ($325 million + $25 million for a second BOP).
Through the amended agreement the Company has effectively improved its payment terms if the option is exercised, while maintaining full optionality. The $12 million down-payment will be paid with existing cash on the balance sheet. Should the option be exercised, the Company is in a position to finance the $93 million down-payment through a combination of leverage on its existing assets and cash on the balance sheet. An affiliate of Hemen Holding Limited, the Company’s largest shareholder, has expressed interest in providing such financing at competitive terms, if needed.
The Company continues to view the option for Cobalt Explorer as attractive and being in the money. Asset values for 7th generation drillships have strengthened since the Company’s entrance into the deep water market six months ago. Flexible delivery schedule until 2021 from reputable yards for similar assets is also becoming increasingly challenging to replicate.