Seadrill willing to ‘modify’ current rig contracts

Offshore drilling contractor Seadrill Limited has today reported a drop in its fourth quarter revenues. The company’s 4Q 2014 revenues were $1.26 billion, compared to $1.46 billion in the corresponding period of 2013. The company’s 4Q net income was $150 million, versus $281 million a year ago.

The drilling companies are facing hard times ahead, and Seadrill is no exception. In it quarterly report, Seadrill has said it is willing to discuss lowering day rates for its already contracted rigs.

Rig utilization

During the fourth quarter, Seadrill Limited had 19 floaters and 24 jack-up rigs in operation in Northern Europe, US Gulf of Mexico, Mexico, South America, Canada, West Africa, Middle East and Southeast Asia. Additionally Seadrill manages ten Seadrill Partners rigs comprised of seven floaters and three tender rigs. Seadrill also manages two tender rigs owned by SapuraKencana.

Seadrill Limited floaters (drillships and semi-submersible rigs) achieved an economic utilization rate of 94%in the fourth quarter compared to 89%in the third quarter.  The economic utilization for the Seadrill Group floaters on a combined basis was 93%.

Average economic utilization was 98% for our jack-up rigs in the fourth quarter compared to 96% in the preceding quarter.

Newbuild delays

Seadrill currently has 15 rigs under construction comprised of four drillships, three semi-submersibles, and eight jack-ups.

Due to the weak drilling industry market, caused by a combination of falling oil prices, cuts in spending by oil majors, and oversupply of new rigs, Seadrill is looking to postpone the rig deliveries, in order to avoid taking delivery of a unit without a contract.

The drilling contractor has reached agreements with both Cosco and Dalian shipyards in China to delay delivery of the Sevan Developer semi-submersible drilling rig and eight jack-up drilling rigs.  In the case of the Sevan Developer, delivery was initially delayed by 12 months with cancellation options at six month intervals with the potential to delay delivery by up to 36 months. The agreement with Dalian extends delivery on eight Jack-up units for a total  of 44 months.

Transocean, a Seadrill competitor, last week announced a similar move, saying it had reached an agreement with Keppel to delay delivery of five jack-up rigs.

Challenging Times

Seadrill has said that in light of the current environment, the company is encountering situations where its clients request relief to contracted dayrates or seek early contract termination.

“In the event of early termination for the customer’s convenience, an early termination amount is typically payable to Seadrill, in accordance with the terms of the drilling agreement. While the Company is confident that its contract terms are enforceable, it may be willing to engage in discussions to modify such contracts if there is a commercial agreement that is beneficial to both parties,” Seadrill has said in its quarterly report.

Healthy in the long run

Commenting today, Per Wullf, CEO and President of  Seadrill  Management Ltd., said:  “Together  with the  rest  of  the  industry , we are facing challenging times. Seadrill operates in a market that is, and will continue to  be cyclical.

“We have taken  prudent and positive action during 2014, and will continue to do so in 2015, to position ourselves to have the flexibility , from an operational and financial perspective, to  manage through this  downturn. I personally thank all  employees, offshore  and  onshore,  for  their efforts in driving performance and efficiencies in this difficult environment.”

“We are optimistic that  the  drilling industry  will benefit from the rebalancing that is occurring as older rigs are retired, and believe that this will ultimately result in  a more healthy industry  in the long run. We have built Seadrill’ s business with an eye towards generating returns through the cycle and we believe that we are well positioned to take advantage of this downturn and come out stronger.”

Offshore Energy Today Staff

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