Odfjell Drilling sees profit fall and rig contracting risk

Odfjell Drilling, an international drilling, well service and engineering company, has seen a $5 million profit drop in its first quarter 2015 results. 

Namely, the company reported a net profit in Q1 2015 of $18 million compared to Q1 2014 of $23 million.

The company also reported that its operating revenue for Q1 2015 was $240 million ($274 million), a decrease of $34 million, or 12 %.

According to Odfjell Drilling, the results in the first quarter were negatively impacted by a further drop in activity level for its engineering and well services business and by a negative result in Deep Sea Metro due to one of its two drillships being idle in this quarter.

However, the company further added that this has partly been compensated by good performance on its wholly owned mobile drilling units.

“The Group’s financial results for the first quarter are satisfactory seen on the background of the current market situation. We are implementing adequate measures to remain competitive and robust under these market conditions which we expect will continue for a period going forward,” says CEO, Simen Lieungh.

Cost reduction programs

The Group has implemented a series of measures to reduce cost levels throughout the organisation. The Group is in the process of optimising its support functions in order to provide more efficient support services. In Q1 2015 about 60 employees has been laid off. Further downsizing of the onshore organisation will be executed throughout 2015 to reduce future cost level and other cost savings initiatives are in the process of implementation. A reorganisation of operational and technical support services has also been initiated to increase efficiency and operational performance.

Outlook

In its Q1 report, the company said: “The drilling market has continued weakening into 2015 and we expect this to remain weak over the next couple of years. The soft market is due to continued delivery of newbuilds and oil companies’ increased cost focus and capital discipline, resulting in an increasing number of stacked units and continued downward pressure on day rates.”

Odfjell Drilling owns a fleet of three 6G ultra deepwater (UDW) and harsh environment (HE) semi-submersibles, two 6G UDW drillships (40% owned through the Deep Sea Metro JV) and a 3G midwater semi-submersible. Several of these units are exposed to re-contracting risk in the current or near term drilling market.

Namely, Deepsea Metro II is currently free of charter and Deepsea Metro I is up for renewal early 2016. In addition, Deepsea Atlantic and Deepsea Stavanger are up for renewals later in 2015.

“In our opinion, the demand for UDW and HE units will slowly start improving throughout 2016 leading to increased utilization and subsequent improvement in day rates,” Odfjell Drilling said.

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