Valuation of Songa Offshore SE

Kristoffer Hodne & Thomas Andreassen

Student thesis: Master thesis

Abstract

Songa Offshore SE is a significant offshore driller operating on the Norwegian Continental Shelf, where they are represented by four rigs currently drilling on long‐term contracts with Statoil. Moreover, they have three additional cold‐stacked rigs offering flexibility should the market conditions improves. Recent years, the industry as a whole has faced solid headwinds emerging from the fall in oil price, culminating in challenging outlooks going forward. One aspect of Songa which stand out is their new and cost effective Cat D rigs which are contracted on high paying and long lasting engagements with Statoil. This contributes a significant amount of the recognized value reflected in the share price reviled in this thesis. This contract coverage has helped shield the company against the already observed downturn. Their strategy in later years has shifted to focus entirely on drilling of the Norwegian coast, with their operational rigs being harsh‐ condition mid‐water semisubmersibles. The specifics of their rigs makes them well suited for drilling in tough artic conditions where most of the future drilling prospects in Norway are located. For Songa to utilize on these potentials, it is important to observe a rebalancing of the market, providing the drilling companies with higher day rates. The exact timing of such convergence is subject to low visibility, presenting upside potentials, but also noteworthy risk relative to our base case. This thesis assessed whether the traded price of SONG as of February 24th 2017 was over‐, under‐, or correctly valued. Based on comprehensive strategic‐ and financial analysis, the authors conclude the share to be overvalued with a true value estimate of NOK21.40, ultimately generating a SELL recommendation to investors.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2017
Number of pages146