Rosneft in Asset Swap With Seadrill

NEW YORK (The Deal) -- Russia's OAO Rosneft on Friday shrugged off U.S. and European Union sanctions with an announcement that it had signed a deal to swap 150 rigs and cash for a 30% stake in Norway's North Atlantic Drilling (NADL) , a unit of Seadrill (SDRL) , the world's largest offshore drilling company.

The deal, which was worth about $746 million based on North Atlantic Drilling's closing share price on Thursday, will underpin a cooperation agreement that will give the Norwegian business access to the Russian exploration market and install two Rosneft representatives on NADL's seven-person board.

The partnership and asset swap was announced by Rosneft CEO Igor Sechin in May, but appeared in doubt after Rosneft in July joined Sechin on a list of U.S. sanction targets. Norway earlier this month joined the EU in backing the U.S. sanctions, which are linked to Russia's perceived support of separatists in the ongoing civil war in eastern Ukraine.

The possible effect of those sanctions on Rosneft came into focus earlier this week when reports emerged that a planned $2 billion oil supply deal had stalled, and possibly collapsed.

Dutch trading company Vitol Group had been due to pay the cash for future Rosneft oil deliveries, a so-called prepayment deal that would have exposed Vitol to political and financial risks and potentially the ire of western governments.

The collapse of the Vitol talks was reported by the Financial Times, which cited unnamed sources, and has not been confirmed by either the trading house or Rosneft. Neither NADL's deal nor Vitol's agreement are forbidden by the sanctions, which stopped short of prohibiting U.S. companies from doing business with Rosneft.


The oil company has, however, been denied access to medium- and long-term dollar funding, a move designed to choke off its ability to raise cash for deals or capital investment. The structuring of the NADL deal as an asset swap, topped up with cash, means Rosneft may not require new debt to finalize the transaction.

Under the terms of the deal, NADL will take control of 150 Russian-owned land rigs, which it will then lease back to Rosneft on a five-year contract.

Rosneft will receive NADL shares valued at $9.25 each in return and will make up any shortfall by paying for the balance of the 30% stake in cash.

NADL is 70.4% owned by Seadrill, which will continue to hold more than 50% following the deal. Sechin said in May that the investment in NADL was the first step in a wider plan to buy into Seadrill and that Rosneft could eventually own as much as 50% of Oslo- and New York-listed Seadrill.

Seadrill, which has a market capitalization of $18.4 billion, is 28% owned by Norway's John Fredriksen.

NADL, whose shares trade in New York and the Norwegian OTC market, has a market capitalization of $2.5 billion. Its shares closed in New York at $10.31 on Thursday.

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