Seadrill, the world’s second biggest offshore oil driller, predicted years of pain for the global rig market on Thursday as energy companies continue to pare spending despite a recent lift in oil prices. The company, part of shipping tycoon John Fredriksen’s business empire, said charter rates are down, most contract talks are about renegotiating existing deals and the market’s depression will likely last through 2016, leading to lower utilisation and scrapping.
It reported first-quarter core earnings, or EBITDA, of $711 million, beating expectations for $638 million. But its stock fell nearly 5 percent, reversing a positive trend that made it one of the best performing offshore rig stocks in the past three months. “Drillers are in a something like three-years recession and they are not at the bottom of their earnings trend yet,” Nicholas Green, a senior analyst at Bernstein Research said. “What we need to see is demand improve and we’re not seeing that,” he said.
“The fundamental story here is that we need to see demand come further up, but it’s not going to come up for probably another 18 months and therefore the outlook for the drillers continues to be very tough.” Despite Thursday’s fall, Seadrill’s stock is up 15 percent over the last quarter, outpacing top rivals like Nobel and Ensco. But its 56 percent drop – 66 percent in dollar terms – over the past year is one of the biggest in the sector, having knocked the firm off its perch as the world’s biggest rig firm by market capitalisation.
Seadrill, which has appointed Mark Morris, the former chief financial officer of Rolls-Royce as its new CFO, said its cost savings programme, started in 2014, has already saved around $250 million and it expects 2015 savings to exceed the previous year’s figure as it delays or cancels spending. But the outlook was also muted as its order backlog dropped to $15.4 billion from $17.2 billion three months ago and second quarter EBITDA would be around $70 million less than in the first quarter, it said.
“Most oil companies are not looking towards adding rig capacity at this point,” Seadrill said. “It is likely that capacity utilization will drift lower as the year progresses and a significant number of ultra-deepwater rigs are likely to be stacked by the end of 2015.”