Despite posting an increase in profits, Danish drilling firm Maersk Drilling has warned that there's a need for a different cost level in the offshore drilling industry.
The firm posted US$751 million profits for 2015, up from $478 million in 2014, thanks to a growing fleet, "continued strong operational performance, fleet growth," and general cost savings, offset by some idle time.
Maersk Drilling also signed 12 contracts in 2015, adding some $2 billion backlog. But, the firm said the contracts signed were at a "significantly lower day rate than previously," which will lead to a "significantly lower underlying result in 2016 than in 2015," with more idle days expected.
"The lower day rates underpin the need for a different cost level in the offshore drilling industry," said the firm.
Awilco Drilling, which also presented its full year results today, also points to the increasingly sluggish market. It has two units, the WilHunter and the WilPhoenix, with the WilHunter currently "warm stacked." The firm says limited contract opportunities and decreasing dayrates are resulting in a rig surplus in 2016 - see chart, with data from Fearnley Fonds and IHS Petrodata.
The "market recovery seems to be pushed even further out in time," says Awilco. "Due to continued low oil price(s), operators have reduced current and planned E&P expenditure. Increased number of available rigs expected to continue through 2016 and beyond. Lack of new contract opportunities currently leading to rig cold stacking. Continued rig attrition is key to rebalancing the future rig market."
“Maersk Drilling delivered a satisfactory [2015] result given the adverse market conditions. We continue to focus on operational performance and a competitive cost level, which are key factors in order to secure contracts for our rigs in this market,” says Claus V. Hemmingsen, CEO in Maersk Drilling and member of the Executive Board in the Maersk Group.
“Given the new oil reality, we have to conduct our operation at a completely different cost level. We have to focus on not only being operational excellent, but also efficient. However, the new oil reality is also an opportunity to solve our customer’s needs and pain points. We have to prepare for the future by recalibrating to the new oil reality by differentiating from our competitors and focusing on value creation for our customers in order to bring down the total system costs,” says Hemmingsen.
At the end of 2015, Maersk Drilling’s forward contract coverage was 77% for 2016 and 52% for 2017 and 43% for 2018. The total revenue backlog by end 2015 amounted to $5.4 billion.
Awilco has a contract backlog of $258 million, primarily for the WilPhoenix with the WilHunter being marketed for work. The firm had a net loss of $32.9 million after an impairment charge of $30 million.
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