NADL: Offshore drilling lags behind the cycle

North Atlantic Drilling (NADL), a company providing harsh-environment drilling rigs for the oil and gas industry, reported revenues of 164.6 million for the second quarter of 2016.

This is a fall when compared to the same period of 2015, when NADL posted revenues of 210.7 million. Net income fell to $16.6 million, from $44 million a year ago.

While the result it worse than last year, NADL said that the numbers have improved versus the previous quarter (1Q ’16). The reason for this is West Phoenix drilling rig, which returned to drilling operations on March 6, 2016, in the UK with Total, after concluding its idle period over the winter months.

During the second quarter, North Atlantic Drilling had four offshore drilling rigs in operation offshore Norway, West Phoenix in the UK sector of the North Sea, and two idle rigs in Norway: the West Navigator and the West Venture.

Currently, the company’s revenue backlog is $420 million. Average remaining contract length is approximately 11 months excluding clients’ options for extensions.

Providing the outlook, NADL said that oil prices appear to be stabilizing in the $40-50 range and there is a sense of optimism from the industry that “we
have seen the worst of this downcycle.”

The Oslo-listed driller said that decline curves continue to accelerate and oil companies are beginning to see the impacts of spending cuts over the last two years, adding there is a growing realization that this level of investment is not sustainable and capital will be required to slow decline curves and grow production at some point.

However, NADL said, in spite of an apparent shift in market sentiment, offshore drilling lags behind the cycle and remains challenging.

The North Sea offshore tendering activity has improved, however, there continue to be multiple rigs bidding for opportunities, and a significant supply overhang driving rates to near operating breakeven levels, NADL said.

Although scrapping and stacking activity is addressing some of this overhang, it will likely take 12-18 months after the bottom of the cycle for rates to improve materially, NADL said.

Offshore Energy Toady Staff

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Posted on August 26, 2016 with tags .

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