Danish offshore driller Maersk Drilling does not expect to see financial improvements from an increase in offshore rig demand until the market reaches a stable oil price above $60 per barrel or until industry cost levels adjust further to a lower oil price.
The current oil price remains below levels required to support sustainable economic returns for the offshore drilling market, the driller’s parent group, Maersk, said on Wednesday in its financial report for the offshore drilling part of business.
The offshore drilling sector continues to hold significant excess capacity, as approximately 130 floaters and 220 jack-up rigs remain stacked, while the newbuild order book still comprises approximately 40 floaters and 100 jack-up rigs, the clear majority of which do not have contracts. Approximately half of the idle floater rigs and one-third of the idle jack-up rigs are cold stacked with limited contracting ability, the company said.
The offshore drilling market showed continued signs of a marginal recovery in jack-up rig demand during 2Q 2017, buoyed by an increase in tendering and contracting activity toward the end of 2016. Tendering activity for floater rigs improved moderately, and further moderate market recovery is expected in the next 6 to 12 months.
According to the company, dayrates are expected to remain soft due to the significant excess supply of drilling rigs. The dayrates currently being tendered are typically close to or below operating cost. Furthermore, the contracts are short in length, leading to idle periods between contracts and higher operating costs due to repeated mobilization, start-up and ramp-down.
The industry continues to reduce costs while engaging in refinancing through equity offerings and demonstrating flexibility with creditors and shipyards. Consensus of reaching or approaching the bottom of the market has led to further M&A transactions for rigs during the second quarter. Moreover, the industry is showing increased interest in integrated alliances and partnerships as a means for differentiation and cost saving synergies.