End To Worst Downturn In History Envisioned By Offshore Rig Firms

Led by oil firms’ growing demand for harsh-environment exploration and triggering multi-billion dollar tie-ups among drillers hoping to profit, executives said that demand for offshore rig rental globally is starting to recover from its worst ever downturn.

Energy companies are now seeking to replenish their hydrocarbon reserves, while firms were forced to cut exploration budgets, ending a boom in rig demand and bankrupting many owners due to the 2014-2016 oil price crash.

Companies and analysts say that increased rates could be the result for harsh-environment rigs as soon as 2018, and other categories may follow in 2019 or 2020 due to the nascent demand for these units, particularly for North Sea drilling.

He would not be surprised to see next fixtures for such rigs to rise to $300,000 from current levels of around $200,000, Transocean Chief Executive Jeremy Thighpen told UBS analysts.

With other segments rising later, day rates for modern harsh-environment rigs is expected to rise to $250,000-$300,000 in contracts awarded in 2018, said Oslo-based Pareto Securities.

With Odfjell Drilling signing in August a nine-month contract with Aker BP at a day rate of $250,000, Nordea bank said it saw the rig market in the North Sea tightening in 2018, particularly for high-end rigs.

As they have the most exposure to harsh-environment rigs, the newest fleets and the lowest debts in the sector, analysts mostly have “Buy” or “Strong Buy” ratings for Borr Drilling, Odfjell Drilling, Transocean and Northern Drilling NODL.NFF, according to Thomson Reuters data.

However, day rates is not expected to be rising significantly to $350,000-400,000 until late 2019 according to Simen Lieungh, chief executive of Odfjell Drilling.

“I think we can see utilization moving into the 80s during the next 12 months,” Borr’s Chief Executive Simon Johnson said while referring to jack-up rigs, used in shallow waters.

While current demand is around 300. Nordea says some 100-200 jack-up rigs may need to be scrapped before day rates improve, some, however, pointing to a large supply overhang in the jack-up market, with total supply counting more than 500 units.

Some executives are now busy seeking mergers and acquisitions eying a market upturn.

On the question of whether to approve the board’s proposal to buy smaller rival Atwood Oceanics, London-based Ensco’s shareholders will vote soon.

While the management has defended it, some shareholders have questioned the timing and the value of the deal.

“We believe the offshore drilling sector is entering a recovery phase following an extended downturn …,” Ensco’s Chief Executive Carl Trowell told investors on Sept. 22.

“… now is the time to make counter-cyclical investments in the highest-specification assets…,” he added.

Borr Drilling acquiring 15 jack-up rigs from Transocean in March and Transocean buying Norway’s Songa Offshore are among the other recent deals.

The recovery is expected to help it to emerge from Chapter 11 proceedings next August by Seadrill, controlled by Norwegian-born billionaire John Fredriksen.

“We have decided to restructure our finances so we can build a bridge to the upturn in the industry when fleet utilization and day rates return to more normal levels,” Seadrill said.

(Adapted from Reuters)

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Categories: Economy & Finance, Strategy, Sustainability, Uncategorized

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