Analyst sees more cold stacks, rig retirements in 2H 2016

Offshore staff

NEW YORK A total of 10 drilling rig contracts have been awarded so far this month, according to Evercore ISI’s Oilfield Services, Equipment & Drilling Group’s monthly updated Offshore Rig Market Snapshot.

Within that number, the contract mix comprised seven new mutuals, one priced sublet, one priced contract, and one mutual sublet. The total inched just above the total from this time last month, when it stood at seven.

Contracting accelerated in the back half of July with a total of 28 contracts confirmed, but Evercore found that numbers are still down from July totals of the prior three years, which it placed at 41, 35, and 54.

The mix continues to favor jackups, which accounted for 17 of the 28 July contracts, or 61%. However, only two of the 17 jackup contracts were for more than one year - Seadrill’s AOD I and II were extended by Saudi Aramco for three years each at $103,000/d (down by an average of 30% for its prior rates) - while five of 11 floater contracts averaged 2.3 years.

Of the Aug. 10 contracts to date, seven are for jackups, with only Vantage Drilling’s Emerald Driller and Transocean’s Sedco 712 inked for deal terms greater than one year.

Fleet operations update

Evercore found that use fell over the past 30 days for its coverage sphere, with the contracted floater count down four, or 4.4%, and the jackup count down two, or 2.3%. Average day rates fell as well, by 19.2% and 3.5%, respectively, driven by North Atlantic Drilling Ltd. Co. and Paragon floaters rolling off contract.

Contractors have continued to cold-stack additional floaters, including Diamond Offshore cold-stacking Ocean Endeavor, Noble its Noble Dave Beard, Ocean Rig its Ocean Rig Apollo, and Transocean the Deepwater Millennium and Cajun Express.

In addition, the report continued, contractors have begun to cold-stack jackups, with Diamond Offshore cold-stacking the Ocean Scepter, Ensco the Ensco 53, and Paragon Offshore the Paragon L782.

Diamond also retired two semisubmersibles - Ocean Star and Ocean Quest and - Transocean the Sedco 702, bringing the year-to-date total to 16 floaters retired by the industry.

Evercore predicted more of this activity through the year’s end.

“We believe more cold-stacking and rig retirements are likely in the months to come, particularly as 32 floaters and 88 jackups are scheduled to roll off contract before year-end, making up ~20% and ~30% of the contracted floater and jackup fleet, respectively,” the analyst firm said.

Contract coverage

Contract coverage for the global floater fleet improved by 85 bps to 26% in 2018, but was unchanged for the remainder of the year and 2017, while the global jackup coverage improved by 140 bps, 90 bps, and 45 bps in 2016, 2017, and 2018, respectively.

For the companies in its coverage universe, Pacific Drilling’s 2016 floater coverage improved the most, while Diamond Offshore leads for 2017 and Atwood for 2018. On the jackup side, Vantage Drilling's coverage improved “dramatically due to the small size of its fleet,” followed by Seadrill in second place, due to the Aramco extensions, the report found.

The group noted that it foresees a “challenged offshore rig market until 2018 at least,” although it does “not believe this is a group that can be ignored.”

08/18/2016

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