More rig contracts ‘set for axe’

A further seven to 10 offshore rigs are at risk of having their contracts cancelled by clients on top of a total of 18 units that have been terminated so far this year amid a market slump, according to Rystad Energy.

Steve Marshall


7 Nov 2016 11:03 GMT Updated 7 Nov 2016 12:44 GMT

Rig contractors including Seadrill, COSL Drilling Europe and Songa Offshore have suffered a rash of charter cancellations and suspensions by the likes of Statoil and Petrobras as cutbacks by operators due to low oil prices have hit drilling demand, leading to a contract drought, lay-ups and plunging dayrates.

Only 10 new contracts were signed for floating rigs – semi-submersibles and drillships – in the third quarter, compared with a previous five-year average of 40 deals and a peak of 123 deals in the first quarter of 2012 at the height of the market boom.

The average dayrate for the latest charters is only $150,000, versus the high $500,000s before the oil price drop in mid-2014, Rystad revealed in a quarterly market update.

“This average is close to operating costs for many of these units and we suspect that certain contracts have been entered into at negative cash margins,” the Oslo-based energy research firm stated.

The average floater utilisation rate is expected to exit 2016 at around 50%, compared with 73% at the end of last year, and is anticipated to be only marginally higher at 53% in 2017, based on forecast rig demand.

“Near-term market conditions remain challenging, as many of the tenders currently in the market are for short programmes versus a small handful of multi-year tenders,” Rystad said.

Among rigs that have already been terminated, Rystad said three units that had received termination notices from Brazil’s state-run Petrobras have gained temporarily relief following an injunction granted by a local court and were currently on standby.

“Regardless of further contract terminations, 2017 will continue to be challenging for the floating rig market with any improvement not likely until 2018,” the firm stated.

However, it sees light at the end of the tunnel as lower drilling costs and increased efficiency have set the stage for an uptick in field investment decisions by operators.

Rystad said as many as 37 field projects are set to reach the stage of final investment decision next year, supporting its forecast of an 8.75% annual increase in floater demand from 2018 to 2020, mainly from East Africa, the Mediterranean and Gulf of Mexico.

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