Rigs Recovery May Be Longer Than Anticipated

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Offshore drilling rig, Gulf of Mexico
OilandPower South-Sudan  2020

In The News

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Bad global oil and gas market has continued to militate against deepwater exploration momentum that initially characterized take off of deepwater activities.

In the last 14 months or so, says a correspondent, 44 ultra deepwater floating rigs have been scrapped, amounting, according to the reporter, to more retirements ever witnessed in the past 20 years combined.

Says that Seadrill further confirmed these difficult market conditions for offshore drilling activity in its third quarter results publication.

Adding that Seadrill which has suffered rig cancellations and deferments continues to look to further delivery deferrals hence the pessimism that just a little will change in 2017.

Per Wullf, CEO and President of Seadrill Management was quoted as saying: “We believe that market conditions are likely to remain challenging through 2016 and the coming quarters will provide insight into the 2017 environment.”

He added: “It is important to recognize that we are in a cyclical business. The longer this downturn lasts, the more robust the recovery will be when it happens.”

Seadrill is banking on this recovery, which, when it comes, will see the firm “in a position to capitalize on the upturn with the most modern fleet and world class operations.”

Seadrill currently has 14 rigs under construction, comprising four drillships, two semisubmersibles, and eight jackups. Some of the delivery dates for these have been cancelled or deferred, including the sixth generation ultra-deepwater semi West Mira, following a contract cancellation by Husky Energy.

It’s likely to be a tough market for some time, yet, Seadrill suggests that this would help thin out the herd. “Significant cold stacking activity would represent a positive development in the market, effectively reducing marketed supply and helping to stabilize utilization and pricing until a more fundamental recovery is in place,” the firm said.

Seadrill says 27 of the 43 rigs due to roll off over the next three quarters are “5th generation or below units that would be challenged to find work for the foreseeable future as they are priced out of the market by more capable units. 15 or 20 year old assets require significant capital investments to remain part of the active fleet and very few rig owners will find economic justification to keep these old assets working.”

As a result, between now and 2018, there is a high likelihood that there will be overall contraction in the floater fleet due to delivery delays and scrapping activity, Seadrill noted.

In the premium jackup space, Seadrill says there are some 66 idle units older than 30 years, out of a marketed fleet of 476, with a further 64 units older than 30, due to come off contract by the end of 2016. Together this amounts to 27% of the market. Some 125 jackups are currently under construction, but Seadrill thinks the deployment of these units will be “somewhat rationalized in the longer term as the more established platers will likely only take delivery when economically viable.”

It’s not all bad news either. During the third quarter Seadrill secured a new three-year contract with Saudi Aramco for the jackup unit West Callisto.

During the third quarter, Seadrill owned 19 floaters and 19 jack-up rigs in Northern Europe, US Gulf of Mexico, Mexico, South America, Canada, West Africa, Middle East, Southeast Asia and Australia. Additionally Seadrill manages eleven Seadrill Partners rigs comprised of eight floaters and three tender rigs, and five jack-up rigs now owned by the SeaMex Joint Venture. Seadrill also managed one tender rig owned by SapuraKencana.

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