Following a turbulent three-year period in which offshore drilling companies were hit by the impacts of the financial crisis and the Gulf of Mexico (GOM) drilling moratorium, the sector is showing signs of “recovery and reinvestment,” in large part because of rising day rates and demand for deepwater drilling services, according to IHS Inc.
Financial performance in 2012 compared with 2011 to date indicates that a “representative group of offshore drilling contractors” has begun to recover from the impact of the 2008-2009 financial crisis, which drove down oil prices and impacted client cash flow, as well as from the drilling slowdown that followed the 2010 Macondo well blowout and subsequent deepwater drilling moratorium in the GOM, said IHS’s principal energy financial analyst John Parry, who authored the IHS Herold Offshore Contract Drillers Peer Group Analysis.
“This sector faced a perfect storm, and investors did not take kindly to this sequence of events, as witnessed by the stock market collapse of offshore driller equities,” he said. “The recovery has been agonizingly slow, particularly for Transocean, whose rig [Deepwater Horizon] was involved in the Macondo incident, and for Diamond Offshore Drilling, which has the oldest fleet among the major offshore drillers and the fewest new rigs under construction but, it is a recovery, and we started to see a reversal of fortune for this sector in the first half of 2012.
“Significant earnings gains appear likely for the sector in 2013 and 2014, as energy company clients appear willing to pay higher day rates, particularly for newer, more sophisticated offshore rigs.” IHS said higher activity was seen in the deepwater GOM, Brazil, and offshore Africa.
Earlier this month Wood Mackenzie said a strong resurgence in exploration and production activity in the deepwater GOM had put the offshore region well on its way to a “new equilibrium” in 2013 (see Daily GPI, Oct. 4).
Post-Macondo concerns, which pressured the offshore drilling sector particularly in the U.S. GOM last year, have eased, Parry noted. In addition, offshore drillers are continuing a “major reinvestment cycle to replace their aging jack-up fleets, while also adding more sophisticated floating rigs for deepwater and harsher environments.”
Worldwide jack-up rig utilization at the end of June was the highest in more than two years, with 474 jack-ups worldwide and demand at about 384, according to IHS Petrodata.
Total utilization of all jack-up rigs was around 80%, but the effective utilization of all rigs actually being market ready was a higher 92%, IHS noted . In the first six months of this year 22 announcements in 10 different countries were made for discoveries in water depths of 4,000 feet or deeper — at an average water depth of 6,400 feet — with the deepest at 7,400 feet offshore Mozambique. Drillers expect a continued uptick in deepwater activity and rig demand, said Parry.
Both Ensco and Noble Corp. have been upgrading their fleets and “appear to hold a relative competitive advantage, aided by their rising exposure to the deepwater and ultra deepwater markets, where clients have had recent exploration success. Rowan Cos., a major player in the premium jack-up market, has undergone a major restructuring, shedding long-held manufacturing and land-rig assets and reinvesting the proceeds in the deepwater market,” he said.
“In general, Ensco and Noble Corp., thanks to their rising population of newer rigs, are having the strongest margin recovery in 2012,” he said. Operating gross earnings margins “also reflect fleet mix and prior contract terms, as well as current rising costs and impacts from the changing compliance environment. Consequently, it may require more time to measure the true extent of the recovery by offshore drillers.”
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