Seadrill down, but not out

Seadrill’s 1Q 2015 results showed the company’s revenue at US$1.244 million, down just 1.36% from $1.261 million in 4Q 2014.

The West Jupiter. Image from Seadrill.

Operating profit skyrocketed to a whopping 35.7% to $703 million in 1Q, compared to $452 million in 4Q. Seadrill attributed the increase to the deconsolidation of SeaMex joint venture with Pemex, a full quarter of operations for the West Saturn, West Jupiter, and West Neptune drillships partially offset by idle time on the West Navigator, and the loss on impairment of goodwill recognized in 4Q.

Its net financials represented a loss of $197 million, compared to 4Q’s loss of $251 million. The 1Q loss was primarily related to interest expense and losses on the mark to market of derivative financial instruments, partially offset by interest income and foreign exchange gains, Seadrill said.

“As expected, the offshore drilling market continues to face challenges from both the supply and demand standpoint and has continued to deteriorate since our last earnings call in February,” said Anton Dibowitz, Seadrill chief commercial officer.  

Seadrill’s order book for floaters includes a total of 89 units, of which 29 are Sete newbuilds. Dibowitz said that 70 units are due for coming out of their contracts and are in need of classing, resulting in significant costs.

As a consequence, scrapping levels, which are at its highest levels since the 1990s, is likely to accelerate in the next two years. Potentially meaning that the company will see little or no growth in the marketed supply of floating rigs between now and 2018, Dibowitz said.

On the bright side, the West Tellus ultra deepwater drillship secured a three-year contract with Petrobras off Brazil. The West Carina is scheduled to begin operations for Petrobras, also offshore Brazil, in a three-year contract in 2Q 2015.

Seadrill’s jackup order book is looking at 150 units. Roughly half of these units have been ordered by contractors that have little to no operating experience, leaving their ability to secure work up in the air.

The company has not seen scrapping activity in their jackup fleet, but due to the fact that about 50% of the units are in excess of 30 years in age, it is highly likely that scrapping will occur in due course.