Maersk Drilling profit lifted by rig termination fees

Danish drilling contractor Maersk Drilling on Thursday reported an increase in its third quarter 2016 profit owing to an early contract termination fee for one of its drillships as well as operational performance and cost savings. 

Maersk Drilling delivered a profit of $340 million in the third quarter of 2016, an increase compared to last year’s third quarter profit of $184 million. The profit was positively impacted by $210 million due to the early contract termination of the drillship Maersk Valiant in July this year by the joint contract partners Marathon Oil and ConocoPhillips. The original contract was scheduled to end September 2017.

The company said that the profit was also positively impacted by operational performance with an average uptime of 98% and savings on operating costs, partly offset by more idle days. The underlying profit was $340 million, compared to 3Q 2015 and underlying profit of $172 million.

The offshore driller also delivered higher revenues for the quarter totaling $733 million as opposed to revenues of $646 million in last year’s third quarter.

Although satisfied with the company’s 3Q performance, Claus V. Hemmingsen, CEO of Maersk Drilling and Vice CEO of the Maersk Group, said that the market outlook for the offshore drilling industry remains challenged, which will also affect the company’s business going forward. “As current contracts expire, new and lower day rates will be adopted or rigs will become idle.”

At the end of 3Q 2016, Maersk Drilling’s forward contract coverage was 68% for the rest of 2016, 55% for 2017 and 45% for 2018. The total revenue backlog by the end of 3Q amounted to $4.1 billion, compared to last year’s backlog of $5.8 billion. Excluding exchange rate effects and number of rigs in operation, Maersk Drilling has reduced costs by 11% compared to 3Q 2015. Since the launch of the cost reduction and efficiency enhancement program in 4Q 2014, Maersk Drilling’s costs have been reduced by more than 18%.

Maersk Drilling also recently announced a reduction at its headquarter organization by up to 70 positions of which approximately 20 were expected to be vacancies that would not be filled.

Hemmingsen added: “The offshore drilling industry continues to be challenged by low oil prices and deteriorating market conditions, driving down both dayrates for new contracts and rig utilization levels due to lower demand.”

Maersk Drilling now expects an underlying result in line with last year $732 million, with a break-even result expected in 4Q, versus previously an underlying result below last year.