The offshore drilling market is entering its second year of the downturn, which is shaping up to be more challenging than the first – and worse than had previously been expected by the industry, according to Seadrill.
Analyzing the ultradeepwater floater rig market in its latest results presentation, the Norwegian driller estimated that about a quarter of all ultradeepwater floaters will become available this year, a third of which are newbuilds that are yet to be delivered.
Based on this available capacity, significant delays or cancellations of newbuild projects can be expected, it said, with new tendering activity also remaining subdued as oil companies set their budgets at materially lower levels than in recent years.
Rig owners are bidding for available work extremely competitively with a focus on utilisation over returns, it continued, which will likely drive rates down to or below cash breakeven levels.
It did then focus on the positive side, pointing out that the severity of the current downturn “is forcing the contract drilling industry to make prudent decisions regarding cold stacking and scrapping of older units. This activity is expected to accelerate, likely to levels which have not been seen in two decades. Owners of older, inefficient units face difficult decisions as these units approach periodic classing activities and most seem to be opting not to invest the significant expenditures required, instead choosing to stack or scrap the unit.
“From a long-term perspective, we believe these decisions will ultimately create a more healthy industry as weaker players leave the business and old rigs are retired.”
Seadrill went on to actually report encouraging financial figures, with an EBITDA of US $897 million, a year over year increase of 17%, with fourth-quarter 2014 EBITDA put at $672 million. Net income for the quarter was $150 million, while the company’s order backlog is approximately $17.2 billion.
Certain highlights it flagged up include the sale by Seadrill Ltd. of the ultradeep drillship West Vela to Seadrill Partners for $900 million on a 100% basis. It also exercised a purchase option for the West Polaris, a 6th generation ultradeep drillship, from Ship Finance International Ltd. for $456 million (the total consideration payable to Ship Finance is $111 million after accounting for existing debt on the unit).
On the contractual front it secured executed contract awards with Petrobras for the Libra Field offshore Brazil for the West Tellus and West Carina, each for a firm period of three years with a total revenue potential including mobilisation of $1.1 billion. It also clinched a 145-day contract extension with Total for the semisub West Eclipse, with total revenue potential for the extension put at about $65 million.
It was unable, however, to finalize extensions with Petrobras for the ultradeep semisubs West Taurus and West Eminence rigs. The company has already stated it no longer believes the contracts will be concluded in the timeframe or on the previously approved commercial terms, and that it “continues to work with Petrobras and its partners to find a mutually agreeable commercial solution”.
Seadrill Ltd.’s floaters segment (drillships and semisubs) achieved an economic utilization rate of 94% in fourth-quarter 2014, compared to 89% in Q3.
The company currently has 15 rigs under construction, including four drillships, three semisubs and eight jackups. Total remaining yard instalments for these are approximately $4.3 billion, with $1.1 billion paid to the yards in pre-delivery installments.
The company did also add that preliminary steps have been taken to delay deliveries in order to avoid taking delivery of a unit without a contract in place. It has reached agreements with both the Cosco and Dalian yards to delay delivery of the Sevan Developer and eight jackup units. In the case of the Sevan Developer, delivery was initially delayed by 12 months with cancellation options at six-month intervals, with the potential to delay the eventual delivery by up to 36 months.