Offshore drillers, companies providing drilling rigs for the oil and gas industry’s marine exploration efforts, continue to face murky market conditions, and according to Fitch ratings agency, the situation is nowhere nearly close to improvement.
According to Fitch, a 70% drop in oil price, and the offshore rig oversupply cycle have led to a continued market dayrate weakness.
The ratings agency has thus revised its base case market dayrates for high-specification ultra-deepwater rigs to $275,000/day.
“This is a downward revision from our previous base case estimate of $300,000/day due to the increasingly competitive contracting environment,” Fitch said in a statement on Thursday.
Furthermore, Fitch expects other rig classes to see similarly steep price discounts. Fitch also said that market dayrates could reach cash breakeven levels – about $200,000/day for high-specification ultra-deepwater rigs – but continues to expect operators will be cautious, particularly larger, established drillers, about bidding at or below cash breakeven levels.
While the low rig price might seem attractive for oil companies, Fitch is of the opinion that careful consideration will be given to an operator’s size, staying power, geological familiarity, and historical operating performance.
Rationalization & Recovery
Fitch expects floaters rationalization process will generally be more orderly than the jack-up market and that it will rebalance more quickly.
“Fitch believes that the more competitive jack-up market environment provides fewer economic incentives for operators to rationalize over the near-term,” the company said.
Offshore rig demand could lag a recovery to supportive oil price levels – currently estimated at $65 – $70/barrel for deepwater – by at least six months to a yearto encourage operators to set aside more cash to offshore projects, Fitch said.
Fitch has pushed back its recovery inflection point estimate into the second half of 2018 from late 2017/early 2018 with a risk for further inflection point revisions. A recovery to more robust operating and financial metrics is not likely to happen until after that point, Fitch said.
Offshore Energy Today Staff