Seadrill is keeping with its cost management program in part by delaying newbuilds, but still experienced a 7.8% decrease in revenue in 2Q 2015.
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The West Vela. From Seadrill. |
Currently, Seadrill has 15 rigs under construction: four drillships, three semisubmersibles, and eight jackups. The company has a balance of US$4.3 billion to make in installments with $1.1 billion already paid to shipyards, and has deferred a number of its newbuild deliveries.
The West Draco and West Dorado drillships, originally scheduled for delivery in 3Q and 4Q 2015, have been delayed to the end of 1Q 2017. In addition, the eight jackups that were to be delivered this year have also have amended delivery dates.
One jackup is set for delivery at the end of December 2015, five jackups will be delivered in 2016, and the remaining two jackups have been pushed back until 2017. Seadrill is still negotiating with shipyards on the delivery dates for the remaining units.
“We are realizing the benefits of the cost management program we initiated in 2014 and we are now targeting an increased level of cost savings for 2015," "Seadrill has continued to be proactive in order to manage through the current downcycle. Contract renegotiations with our customers are progressing and we have reached agreements with two shipyards to manage our delivery schedule. We believe market conditions will remain challenging through 2016, and we will continue to focus on safety, efficient operations and cost management.”
Revenues came in at US$1.147 million compared to $1,244 million in 1Q 2015. Operating profits for the period were $384 million, a massive 45% decrease from 1Q’s $703 million that Seadrill said is partly due to the loss on the sale of the West Polaris to Seadrill partners in 2Q.
Net financial and other items for the quarter showed a gain of $84 million compared to a loss of $197 million in the previous quarter. The change in financial items was largely impacted by the sequential change in derivative financial instruments, which accounted for $225 million of the quarter over quarter change in financial items, the company said.
The Seadrill Group's cost savings initiatives put into place at the beginning of 2014 continue to progress following a successful 2014 in which approximately $250 million of cash savings were realized. During 2015, the Group expects to continue these efforts primarily by reducing or postponing spending in operating expense, G&A and capex and believes that cash savings of approximately $500 million can be realized, Seadrill said in its 2Q report.
As of 2Q, Seadrill owns 19 floaters (drillships and semisubmersibles) of which 16 are in operation and two idle. Economic utilization rates for the floaters were 92%, a decrease of only 1% compared to 1Q. Excluding the West Tellus, which had 40 days of downtime during 2Q, economic utilization was 94%.
Of Seadrill’s 19 jackups, 17 are in operation and two are idle. The average economic utilization for jackups was also down 1% this quarter at 97%.
All units operating are locatedin Northern Europe, US Gulf of Mexico, Mexico, South America, Canada, West Africa, Middle East, Southeast Asia and Australia. Seadrill also manages 11 Seadrill Partners rigs comprised of eight floaters and three tender rigs, and five jackup rigs now owned by the SeaMex joint venture. Seadrill also managed two tender rigs owned by SapuraKencana.
The company was able to enter into new contracts in the period, resulting in total net backlog increase of approximately $300 million.
Seadrill's order backlog as of 27 August stands at $7.54 billion, comprised of $6.02 billion for the floater fleet and $1.52 billion for the jackup fleet. The average contract duration is 26 months for floaters and 15 months for jackups. For the Seadrill Group, total order backlog is $14 billion
Due to the low oil market, dayrates for new fixture activity remains at, or below, cash flow breakeven levels for both the floater and jack-up markets. Seadrill continues to believe that this challenging market will continue through 2016 and that visibility for 2017 and beyond is dependent upon commodity price stability, oil companies realizing the benefits of their capital spending rationalization programs and continued fleet attrition, the company said.
In its ultra deepwater rig market, Seadrill expects stacking and scrapping activity to continue through the rest of the year and well into 2016 based on the current level of activity.
“Scrapping activity has continued in the second quarter with an incremental 14 floaters designated for retirement. A total of 40 floaters have been now been scrapped since the end of 2013, equivalent to 12% of the total fleet, and currently there are 28 cold stacked units,” Seadrill reported. “We continue to believe that the significant cost to perform periodic classing activity on these older assets will ultimately drive decisions to cold stack and scrap these less capable units.”
The report went on to say that the orderbook currently stands at approximately 78 units, of which 29 are Sete newbuilds. Approximately 145 units, or 51% of the total marketed floater fleet are rolling off contracts between now and the end of 2017, many of which must undergo a 15- or 20-year classing.
Seadrill is expecting that a significant number of newbuild orders will be delayed until an improved market justifies taking delivery of the unit, and that there will be limited, or no, growth in the marketed fleet between now and 2018.
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