Seadrill: Drillers facing grim outlook

Seadrill, one of the world’s largest drilling contractors, today said that the drillers’ market outlook remains bleak for the remainder of 2015, possibly extending throughout 2016 as well.

“Despite the recovery in the oil price during the first quarter, oil companies are continuing to take a cautious approach to capital expenditure and other cost commitments given the severity of the overall oil price decline,” Seadrill said.

Per Wullf, CEO and President of Seadrill Management Ltd., said: “Seadrill continues to be focused on operational excellence and financial flexibility in order to manage through this downturn andthrive when the market recovers.”
“The industry continues to face challenging times and while the first quarter performance has been solid we are not immune from the wider industry challenges. Indications suggest the remainder of 2015 will see subdued market conditions and the challenging market continuing into 2016.”

The company, which reported net income for the first quarter of 2015 of $488 million, compared $3.1 billion in the corresponding quarter of 2014, has said that in the first quarter it agreed to reduce dayrates for several of its contracted drilling rigs.

“During the quarter, the market has seen very little new fixture activity and the new contracts that have materialized are at significantly lower dayrates. Customer conversations have focused on renegotiation of existing contracts, often in exchange for additional duration,” Seadrill added.

Apart from the low oil prices, the drilling companies have hurt themselves too, by ordering to many drilling rigs, leading to an oversupply in the market, which has pushed the day rates down.

Seadrill itself currently has 15 rigs under construction and, in line with its competitors, it is negotiating with the shipyards to delay some deliveries until the market conditions improve.

Scrapping to the rescue?

In its floater fleet section outlook, the company has said that the downturn in the offshore drilling market has continued during the first quarter and all signs point to 2015 demand being significantly lower than in 2014.

“The outlook for activity beyond 2015 is difficult to judge but most oil companies are not looking towards adding rig capacity at this point. It is likely that capacity utilization will drift lower as the year progresses and a significant number of ultra-deepwater rigs are likely to be stacked by the end of 2015,” Seadrill has said.

Seadrill has said it expects to see more stacking and eventually scrapping of older units as pricing declines and operators continue to focus their activity on the most capable units.

The company has said that there is visibility of an expected rebalancing of market supply in the next few years when considering the size of the newbuild orderbook and the degree of scrapping that is expected.

“Currently the orderbook stands at approximately 89 units, of which 29 are Sete new builds. At the same time roughly 70 units are rolling off contracts, many of which must undergo a 15 or 20 year classing between now and the end of 2017. There is a high likelihood that a number of these units will be scrapped, potentially leading to little or no fleet growth between now and 2018. Thus far, the market has seen 14 rigs scrapped in 2014 and 12 already in 2015.”

According to Seadrill, this represents the highest degree of scrapping activity seen since the early 1990’s and it is likely to accelerate over the next two years.

Offshore Energy Today Staff