Lower dayrates and higher expenses drag Maersk Drilling into the red

Danish offshore driller Maersk Drilling recorded a net loss in 2019 and a decrease in revenues due to lower dayrates and higher financial expenses compared to the previous year.

For the full year 2019, Maersk Drilling posted revenues of $1.2 billion, a decrease from revenues of $1.4 billion in 2018. The revenues were 14% lower compared with the previous year mainly due to the effect on average dayrates from the expiry of legacy contracts.

The average dayrate of $194,000 was 18% lower than in 2018 ($237,000), primarily impacted by Maersk Discoverer and Maersk Integrator having legacy contracts replaced with new contracts at significantly lower dayrates.

The company recorded a loss of $113 million in 2019, compared to a profit of $941 million in 2018. Maersk said that the net loss for 2019 reflects the lower EBITDA and higher financial expenses compared to the previous year. In 2018, the profit was positively impacted by a non-cash reversal of previously recognized impairment losses of net $810 million.

Following the $1.5 billion debt financing raised towards the end of 2018, the net financial expenses increased to $68 million in 2019 compared to $12 million in 2018.

Maersk Drilling’s revenues in 4Q 2019 were $305 million compared to $294 milion in 3Q 2019.

Utilization remained unchanged at 76% and average dayrate increased to $200,000 in 4Q 2019 from $183,000 in 3Q 2019.

The company’s revenue backlog of $2.1 billion at December 31, 2019, was  unchanged from September 30, 2019.

Maersk Drilling CEO, Jorn Madsen, said:  “During the year, we continued to see the impact of the market recovery with more days on contract and, in the fourth quarter, we also started to see an increase in the average realized dayrates. However, the duration of new contracts remains relatively short. With a strong contracting performance during the year, we retain good visibility into 2020. This, combined with our positive free cash flow generation and strong balance sheet, provides us with a continued high degree of financial flexibility.”

Deepwater spending to drive increase in offshore investments 

The price of Brent crude oil averaged $64 per barrel in 2019, representing a decrease of 11% compared to the average of $72 per barrel in 2018.

According to the Danish company, the robust cash flows and general feasibility of offshore projects are clearly visible in the levels of project sanctioning activity. Despite a slight decline in the number of Final Investment Decisions (FIDs) by oil and gas companies in 2019, the increasing overall trend since the low point in 2016 is expected to continue in the coming years. According to Rystad, the number of FIDs are expected to increase more than 50% year-on-year in 2020 and approximately 10% year-on-year in 2021.

The rising sanctioning activity further translated into increased offshore investments in 2019, with additional capital expenditures in both deep-water and shallow-water activities. For 2020, offshore investments are expected to increase even further with additional deepwater spending to drive the majority of the increase, Maersk said.

These overall market improvements cascaded down into the offshore drilling industry with global offshore rig utilization continuing to increase as a result of rising demand as well as further rationalizations on the supply side. The increase in demand was most visible in the jack-up market, where marketed utilization (excluding cold-stacked rigs) in the broader segment climbed above 85% during the fourth quarter of 2019 and averaged 81% through the year compared with 73% in 2018.

In the floater segment, marketed utilization averaged 79% in 2019 compared with 75% in 2018. Contracting activity on the floater side has been soft since the start of the downturn, resulting in steep declines in forward coverage for the segment. This is constraining on a broader-based recovery of the floater market, with marketed utilization fluctuating around 80% during the past several months. More long-term projects are needed in order to build sufficient backlog and effectively remove supply from the segment for an extended period of time.

In the second half of 2019, several tenders and pre-tenders were issued for multi-year drilling campaigns, boding well for future demand for floaters.

Dayrates in the floater segment continued to gradually improve during 2019 and appear to have stabilized at levels above $200k per day compared with $150–180k per day in the beginning of the year.

Offshore Energy Today Staff

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