Seadrill remains positive on long-term drilling outlook

HAMILTON, Bermuda – Seadrill has secured a two-year drilling contract offshore Angola for the semisubmersible West Eclipse, due to start in 2Q 2016.

Currently the contractor’s backlog totals $5.1 billion, comprising $3.9 billion for its drilling floater fleet and $1.2 billion for its jackup fleet. The average contract duration is 18 months for floaters and 13 months for jackups.

The offshore drilling market continues to be oversupplied, Seadrill says, and contracting activity has sunk to levels last seen in the 1980s.

Oil company capex are expected to decline further in 2016, and Seadrill expects that the majority of rigs with contracts this year will not find suitable follow-on work. As a result, many will likely be idle for a prolonged period, accelerating cold stacking and scrapping activity.

For the time being oil companies will continue to work on managing their existing rig capacity, the contractor adds. In many cases they are over-committed due to reduced activity levels, and there is little demand for adding new rigs to the global fleet.

The general priority appears to be cost cutting to support dividend payments, and this is set to negatively impact the long-term production profiles of existing development projects.

Despite the industry’s subdued mood, Seadrill remains positive on the long-term outlook. Eventually a supply imbalance is inevitable, leading to a rebalancing in the oil markets, although this may take some time due to the high degree of sunk costs in producing projects.

Offshore oil fields represent a material portion of most major oil companies’ reserves, Seadrill points out, and their production remains a cost-competitive source of hydrocarbons. When the cycle turns the company foresees a strong future for its modern, high-spec fleet.

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