Drilling day rates set to reverse recent gains, consultant warns
Offshore staff
OSLO, Norway – Drilling contractors could be facing a combined loss of revenue of around $3 billion in 2020 and 2021, according to Rystad Energy.
The analyst estimated the total value of agreed contracts over the two years at $30 billion. So far, in the present crisis, six rig years of contracts have been canceled, amounting to around $400 million in value, and more look set to be called off as operators cut capex budgets and delay projects.
“More than $22 billion in contract value was wiped off the books as a result of contracts being cancelled between 2014 and 2017,” said Rystad head of Offshore Rig Market Services Oddmund Føre.
“Now, in the infancy of a new downturn, a market that was only beginning to return to a healthy level of contracting activity, contract volumes and day rates has seen its hopes crushed.”
Even top tier drillers could have problems meeting debt payments and may need restructuring, he warned.
Rystad’s analysis suggests offshore drillers and offshore vessel providers will generally be unable to pay their total outstanding debt this year based on their cash flow from operating activities, unless they are able to implement sufficient capex cuts. Otherwise, they would have to approach the capital markets for refinancing.
The credit default swap spread is said to have soared early this year for some offshore drillers, and as a result they now face significantly higher costs for refinancing their debt.
Five years ago, following the previous oil price fall, E&P companies canceled many contracts and chose not to declare contract extension options, subsequently re-hiring rigs at lower rates.
But next year especially, there may be few contracts left for them to cancel. So new contracts could be difficult to secure in the current environment.
“We expect day rates to be pushed down to opex levels once again as the industry now tries to continue to cut costs and improve its performance in a challenging environment,” Føre said.
04/09/2020