Seadrill warns of further rig retirements

Nov. 20, 2020
Seadrill had four floating drilling rigs in operation at the end of 3Q, the company revealed in its latest results statement.

Offshore staff

LONDONSeadrill had four floating drilling rigs in operation at the end of 3Q, the company revealed in its latest results statement.

The drillship West Neptune was under contract with LLOG in the US Gulf of Mexico, while the drillship West Tellus was working for Petrobras off Brazil.

In the North Sea, the semisubmersible West Hercules continued operations in Norway for Equinor, with the semi West Phoenix also in action offshore Norway for Neptune Energy.

Seadrill has four jackups working in the Middle East and two harsh-environment jackups on duty in Norwegian waters. The West Castor and West Telesto are on bareboat charter to the GulfDrill joint venture in Qatar.

The company has warned that the oil price decline and COVID-19 could adversely impact its ability to realize its contract backlog. Customers may seek to terminate or renegotiate contracts, leading to lower day rates or less favorable economic terms.

As examples, Neptune Energy terminated the semi West Phoenix’s contract early, with operations finishing in early November. In September, Aramco suspended operations for the jackup AOD I for three months at a discounted day rate; and Total Angola recently released the drillship West Gemini from its obligations under the contract.

Seadrill’s latest assessment of the knock-on effects of COVID-19 suggests a prolonged period of low rig demand, with currently depressed levels of offshore activity continuing into late 2021.

There are some signs of demand returning, but also uncertainty over the timing and speed of a global economic recovery (and hence higher demand for oil).

Further reductions in day rates could follow over the coming months as rig owners prioritize utilization over pricing discipline due to lack of contract coverage and near-term demand. At the same time, retirement of older, and long-term stacked rigs should accelerate.

At the start of 2020 Seadrill announced it would scrap or offer for sale up to 10 rigs, legacy units that no longer offer sufficient returns on investment.

As part of this initiative, the company recently sold the cold-stacked jackup West Epsilon to Well-Safe Solutions.