Rig market recovery some way off yet - Maersk Drilling

Danish drilling rig operator Maersk Drilling has said it doesn't expect to see significant improvements in offshore rig demand until oil prices stabilize above US$60/bbl, or until drilling costs adjust to a lower oil price. 

"With the excess supply, the market outlook for offshore drilling remains challenged despite increasing tendering activity, as the day rates currently being tendered are typically close to or below operating cost. Furthermore, the contracts are short in length, leading to idle periods between contracts and higher operating costs for mobilization, start-up and ramp-down," says Maersk Drilling's parent, A.P. Moller - Maersk.

The firm says there is still "significant excess capacity," with about 135 floaters and 225 jackup rigs stacked, and some 40 newbuild floaters and 90 newbuild jackup scheduled for delivery - the vast majority of which do not have contracts. 

"Whilst the market has seen some scrapping in the older floaters fleet, the level of scrapping amongst jackups has been marginal," says Maersk, which has 16 jackups, four semisubmersible and four drillships, eight of which are idled and off contract.

A view that the bottom of the market has been reached has led to several mergers and acquisitions in Q1, with companies, including new entrants, taking advantage of distressed players and reduced asset prices. Yet, Maersk group says, "this does not help resolve the oversupply issues for the industry and only increases the number of competitors."

Maersk says it is exploring new business models with select majors, which would see a larger degree of collaboration, e.g. better well planning and commercial alignment between oil companies and contractors.

In the near-term, Maersk says rig utilization and day-rates could continue to trend downward. But, there are signs that utilization for jackup rigs will begin to pick up as 1H 2017 progresses, with the floater rig market expected to be 6-12 months behind.

In Q1, Maersk Drilling reported a profit of US$ 48 million, down from $222 million in the same period last year. At the end of Q1, Maersk Drilling's contract backlog was 57% for 2017, 46% for 2018, and 25% for 2019. The total revenue backlog by the end of Q1 amounted to $3.4 billion (Q1 2016 was $4.7 billion).

Image: The Maersk Venturer. Image from Maersk Drilling.

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