Seadrill, Dolphin and Borr upbeat about offshore drilling market amid strong rig demand

Three offshore drilling contractors – Seadrill, Dolphin Drilling, and Borr Drilling – are feeling buoyant and encouraged by signs of a bullish rig market upcycle amid strong tendering and contracting activity, which made its presence known within the rig owners’ latest contract wins and extensions.

The ongoing upcycle in the offshore drilling market is expected to be a multi-year one, as operators are hiring rigs well ahead of their drilling campaigns and handing out long-term contracts. With the rise in rig demand in full swing, constraints in supply are starting to appear. As a result, day rates keep inching their way up in this tightening market landscape.

Aside from Seadrill, Dolphin, and Borr, other offshore drilling contractors – Shelf Drilling, Diamond Offshore, Noble, Transocean, and Valaris –  have also confirmed the upward trend in day rates and rig demand. While Shelf Drilling’s most recent awards are for jack-up rigs, Transocean and Diamond Offshore got drillship and semi-submersible assignments while Valaris and Noble secured drillship, semi-sub, and jack-up deals.

The offshore drilling players’ results for 2Q 2023 show that Shelf Drilling’s contracted backlog was $2.6 billion with 35 of 36 rigs under contract representing a marketed utilisation of 97 per cent. While Diamond Offshore’s total fleet utilisation was 70 per cent and revenue efficiency was 95.8 per cent; Transocean’s total fleet utilisation was 54.7 per cent and revenue efficiency was 97.2 per cent; Valaris’ total fleet utilisation was 65 per cent and revenue efficiency was 97 per cent; and Noble’s marketed fleet utilisation was 76 per cent.

Seadrill’s 2Q 2023 results reflect a full quarter’s contribution from contracted rigs acquired as part of the Aquadrill transaction, which was completed on 3 April 2023. The firm now owns 12 benign deepwater floaters, beyond the two it manages as part of a 50:50 joint venture with Sonangol; three harsh-environment rigs; and four jack-ups, three of which it plans to sell in consistency with ongoing fleet refinement. The rig owner generated $414 million in total operating revenues in 2Q 2023, compared to $266 million in 1Q 2023, which represents a sequential increase of $148 million, or 56 per cent.

During the quarter, the company operated an average of 13 rigs that contribute to contract revenues at an average day rate of $276,000 and economic utilisation of 93 per cent, compared to an average of nine rigs in the first quarter. This translated into contract revenues of $329 million, an increase of $143 million, or 77 per cent, from the prior quarter, primarily due to a larger number of total operating days reflecting contracted Aquadrill rigs now included in Seadrill’s results.

In addition, the offshore driller generated $66 million in management contract revenues, largely related to the rigs it manages under its 50:50 joint venture with Sonangol, and $19 million in reimbursable and other revenues. Seadrill incurred $308 million in operating expenses during 2Q 2023, an increase of $89 million, or 41 per cent, from the previous quarter, primarily due to higher vessel and rig operating expenses consistent with the firm’s fleet size growth. One-time merger and integration-related expenses of $16 million also contributed to the increase.

Seadrill’s adjusted EBITDA nearly doubled from $85 million in the prior quarter to $159 million in 2Q 2023, or 38.4 per cent of the adjusted EBITDA margin. The firm’s net cash provided by operating activities totalled $20 million in 2Q 2023, compared to $15 million in the prior quarter while adverse working capital movements negatively impacted operating cash flows. Long-term maintenance costs of $23 million, included within operating activities, and $14 million of capital upgrades resulted in total capital expenditures of $37 million, as the rig owner supported a larger fleet of contracted rigs.

At the end of 2Q 2023, the offshore driller had total debt of $355 million and $539 million in cash and cash equivalents, including $127 million in restricted cash. After the quarter, the company refinanced its secured debt, issuing $575 million in aggregate principal amount of 8.375 per cent senior secured second lien notes due 2030 and establishing a $225 million senior secured five-year revolving credit facility with an accordion feature of up to a further $100 million.

Simon Johnson, Seadrill’s President and Chief Executive Officer, commented: “We delivered strong results this quarter, and the full year continues to be in line with previous guidance. This quarter, we executed decisively strategic initiatives that simplify and strengthen our organisation. We established greater scale with the closing of the Aquadrill acquisition. We continued to refine our fleet through value-accretive asset divestitures.”

During last year, the rig owner focused increasingly on the floater segment, through continued accretive acquisitions and divestitures, believing that this part of the rig market will produce the most growth and value for shareholders. In line with this, the firm announced the potential sale of three jack-up rigs and related interest in its 50:50 joint venture with Gulf Drilling International (GDI) and completed the sale of its three tender-assist units to certain affiliates of Energy Drilling (Edrill) for aggregate cash proceeds of approximately $85 million at the end of July 2023.

Seadrill’s order backlog at the end of 2Q 2023 stood at $2.6 billion, reflecting approximately $203 million of contract additions. During the quarter, the firm secured multi-well contract extensions against existing agreements for two drillships, the Sonangol Quenguela and the West Gemini, operating in Angola through its 50:50 joint venture with Sonangol. These exercised options will start in direct continuation of the rigs’ existing contracts, committing the Sonangol Quenguela through January 2025 and the West Gemini through May 2025.

Additionally, the operator of the West Capella exercised a one-well option, extending its operations by approximately two months. Two of Seadrill’s jack-ups, the West Castor and the West Tucana, received contract extensions for continued operations offshore Qatar through the company’s 50:50 joint venture with GDI. As of 15 August 2023, the firm’s order backlog is $2.4 billion.

“We also strengthened our financial position, refinancing our secured debt at competitive rates to reduce our cost of capital and improve our strategic flexibility. We remain committed to prioritising a conservative capital structure, a refined fleet, and a disciplined, value-accretive approach to growth. Our new repurchase authorisation will allow us to evaluate opportunities to return capital to shareholders when available and prudent, driving further value creation,” added Johnson.

Dolphin Drilling reported revenue of $21.8 million in 2Q 2023, up from $1.8 million in the previous quarter. The increased revenues reflect earnings achieved on the Blackford Dolphin rig at an average earnings efficiency of 97.2 per cent when excluding downtime for days waiting for licenses. Total rig operating expenses for the quarter were $16.5 million, which is $1.1 million higher than during the previous quarter.

The firm’s operating expenses reflect a full quarter of operations in Nigeria on the Blackford Dolphin for its contract with General Hydrocarbons Limited (GHL), including $3 million of amortised project cost related to the mobilisation of the rig.

Bjørnar Iversen, CEO of Dolphin Drilling, remarked: “As expected, revenues generated by Blackford Dolphin are sufficient for the company to cover all of Dolphin Drilling’s operating cost, demonstrated by the quarterly EBITDA of $1.6 million. The rig is well positioned to generate strong cash flow in the coming years with back-to-back contracts and associated step-up in day rate.

“Furthermore, our two stacked harsh environment moored semi-submersible rigs have been extensively marketed in the period. We recognise an increased demand in the rigs, underlying the strengthened global rig demand and disciplined bidding strategy among drilling contractors.”

During 2Q 2023, the company announced its acquisition of two semi-submersible rigs – Paul B. Loyd Jr. and Transocean Leader – for a total of $64.5 million along with a further three-year extension for the first rig from Harbour Energy, extending the contract for additional three years until September 2027. Dolphin Drilling contemplated a private placement of approximately $60 million to finance the transaction, which was successfully completed.

“The transaction signifies an important stride for Dolphin Drilling as we showcase our operational platform’s capacity to incorporate additional assets and generate immediate, robust cash flows for our shareholders. The addition of these efficient rigs allows us to further consolidate the midwater rig segment in a tightening market, characterised by historically low supply and surging day rates across offshore basins,” explained Iversen.

Borr Drilling reported total operating revenues of $187.5 million in 2Q 2023, an increase of $15.5 million or 9 per cent compared to the first quarter of 2023. The company’s net income was $0.8 million in the second quarter of 2023, an increase of $8.2 million compared to 1Q 2023. The rig owner revealed an adjusted EBITDA of $84 million for 2Q 2023, an increase of $11.6 million or 16 per cent compared to the first quarter of 2023.

Patrick Schorn, Borr Drilling’s CEO, highlighted: “We continue to see positive development in the market for jack-up drilling rigs and year to date, we have been successful in securing seven new contracts and LOAs for a total estimated duration of 1,771 days and $289 million in contract value. This equates to market-leading day rates of approximately $163,000 per day (including mobilisation-related revenues). In July 2023, one of our customers in West Africa cancelled previously exercised options for our rig Gerd.

“Subsequently, we were immediately able to secure new work for the rig in the Middle East at economics which we view as even more favourable, and in a region where we see better long-term prospects. The change of contract for this rig will lead to some idle time before it commences its new contract in December 2023, which will impact results in the second half of this year, however, this will improve our position in 2024 and beyond. We also intend to bring forward the rig’s periodic surveys during this idle period which will mitigate out-of-service periods previously anticipated in 2024.

“In addition, we have secured a short-term extension to the contract for our rig Prospector 1, operating in the North Sea, a region that is experiencing lower day rate levels than the rest of the world. With the overall market continuing to strengthen, particularly in other regions, we remain positive that this extension will provide a bridge towards favourable long-term commitments elsewhere.”

The offshore drilling player’s total contract revenue backlog as of 30 June 2023 was $1.65 billion. During the 2023 year to date, the company secured seven new contracts and six extensions to existing contracts representing 2,613 days and $376 million of potential revenue. Borr Drilling’s full-year adjusted EBITDA in 2023 is now estimated to be between $330 to $360 million. The rig owner anticipates that its financial performance will get a boost in the fourth quarter of 2023 when all of its 22 rigs will be in operation.

Schorn further elaborated: “Supported by our confidence in the jack-up rig market, we are in active discussions with Seatrium (formerly Keppel), for expedited delivery of our rigs Vale and Var to August and November 2024, respectively. Following our recent contract awards, our fleet’s contract coverage for 2024 stands at 70 per cent, including firm contracts and priced options, with an average equivalent day rate of approximately $123,000, including mobilisation-related revenues.

“Considering this firm contract coverage and projected day rates for the uncontracted days, we have narrowed the estimated range of adjusted EBITDA for the full year 2024 to be between $500 to $550 million.”

Borr Drilling’s latest fleet status report from August 2023 shows that the company got more work for the Mist jack-up rig with Valeura Energy in Thailand, which will keep the rig occupied from December 2023 to August 2024. The rig was originally hired by Mubadala Petroleum in July 2022 for an estimated duration of 210 days. With an estimated total contract value of $25.2 million, the assignment was expected to start in January 2023.

However, Valeura Energy acquired in March 2023 operated interests in three offshore licences in the Gulf of Thailand from Mubadala Petroleum’s subsidiary, Busrakham Oil and Gas, thus, the rig now works for Valeura. The 2013-built Mist rig is of Keppel FELS Super B Bigfoot Class design and it was constructed at Keppel FELS Shipyard.

In June 2023, Valeura disclosed that the Mist rig was on location at the Manora oil field, where the company plans to drill three wells aimed at increasing production from the field and by extension, adding to the economic life of the asset. Upon completion of operations at Manora – anticipated in early August 2023 – the rig will move to the Wassana field for the firm’s five-well infill drilling programme.

According to Borr Drilling, BW Energy has exercised an option to extend the Norve rig’s assignment in Gabon from November 2023 to January 2024. The rig kicked off drilling operations at the BW Energy-operated Hibiscus/Ruche Phase 1 development in the Dussafu licence offshore Gabon at the start of the year, following the installation of the BW MaBoMo production facility, risers, and pipelines. In late July 2023, the jack-up rig started drilling operations on the fourth production well in this drilling campaign.

The 2011-built Norve jack-up rig is of PPL Pacific Class 400 design and can accommodate 150 people. With a maximum drilling depth of 30,000 ft, the rig can operate in water depths of 400 ft. Prior to starting work with BW Energy, the rig carried out drilling activities for Vaalco Energy in Gabon.

Furthermore, the offshore drilling player also secured a contract extension for the Prospector 1 jack-up rig with Neptune Energy. This will run from September 2023 to October 2023. The rig is expected to carry out operations in the Netherlands. This rig has been carrying out drilling operations for Neptune since March 2022.

The 2013-built Prospector 1 jack-up rig is of Friede & Goldman JU2000E design and can accommodate 140 people. The rig’s maximum drilling depth is 35,000ft. It is capable of working in water depths of 400 ft. This rig is equipped with technologies that reduce carbon and nitrogen emissions from drilling by up to 95 per cent, and particle matter emissions by more than 85 per cent.

Moreover, the offshore drilling player also secured letters of award (LOA) for two premium jack-up drilling rigs: Thor and Gerd. The first rig has been booked from December 2023 to May 2024 by an undisclosed operator for work in Southeast Asia while the second one obtained a binding LOA for an assignment from December 2023 to August 2024 in the Middle East.

The 2018-built Gerd jack-up rig is of PPL Pacific Class 400 design and can accommodate 150 people. Constructed at PPL Shipyard PTE in Singapore, the rig is capable of operating in water depths of up to 400 ft and its maximum drilling depth is 30,000 ft. On the other hand, the 2019-built Thor rig is of KFELS Super B Bigfoot Class design and can accommodate 150 people. With a maximum drilling depth of 35,000 ft, it can operate in water depths of up to 400 ft.

Meanwhile, Borr Drilling underlines that two of its rigs have started their new jobs during 2Q 2023. These rigs are Gunnlod and Ran. While the first one started operations in Malaysia with SapuraOMV in June 2023, the second one began working in Mexico for Fieldwood Energy in July 2023.

The 2018-built Gunnlod rig is of PPL Pacific Class 400 design. It is capable of operating in water depths of up to 400 ft and its maximum drilling depth is 30,000 ft. This rig has no other jobs booked at this point.

The 2013-built Ran jack-up rig is of KFELS Super A design. It was constructed at Keppel KFELS yard in Singapore and can operate in water depths of up to 400 ft. The rig’s maximum drilling depth is 35,000 ft. This jack-up will work for TotalEnergies in Mexico after wrapping up work for Fieldwood. The rig is also slated to work for an undisclosed operator in the Americas from May 2024.

Follow Offshore Energy’s Fossil Energy market on social media channels: