Sevan Drilling Limited, an international drilling contractor specializing in the ultra deepwater segment, on Thursday posted a rise in net profit for the second quarter of 2015 when compared to the same period last year.
Namely, Sevan reported a net profit of $13.7 million in Q2 2015 compared to $9.2 million in Q2 2014.
According to its second quarter 2015 report, operating revenue in Q2 2015 was $99.4 million representing a rise when compared to $88.6 million in Q2 2014.
The revenue increase is explained by a full quarter of operations of the Sevan Louisiana, which started operations in May 2014 and operating for the full period in 2015. The rig is operating for LLOG in the U.S. Gulf of Mexico, contracted for a firm period of 1,095 days. It experienced operational difficulties in 2014 due to the Blowout Preventer (BOP) and supporting systems.
Furthermore, total operating expense was $66.4 million compared to $64.3 million in Q2 2014. Sevan explains that the increase is the result of Sevan Louisiana operating in this quarter compared to the prior year, offset by reductions in operating expenses realized across the fleet.
In addition, Sevan’s operating revenue for the six months ended June 30, 2015, was $182.5 million compared to $148.7 million for the comparative period in 2014. Furthermore, the company’s net profit for the six months ended June 30, 2015, was $15.9 million compared to a $1.2 million loss in the same period in 2014.
According to the company, the Sevan Developer drilling rig, constructed by COSCO shipyard, remains ready for delivery (warm stacked) at the shipyard in China.
Sevan says that the rig continues to be actively marketed for an acceptable drilling contract and, if such is obtained, delivery can occur under the deferral agreement. In October 2015, the initial delivery deferral period will conclude and the contract will be terminated if the options to defer delivery are not exercised. The company adds it is evaluating the option to extend under the agreement with Cosco.
To remind, in October 2014, Sevan and COSCO amended the termination rights of the construction contract for the Sevan Developer drilling rig and deferred the delivery date.
Delivery was deferred for 12 months with mutually agreed options, exercisable at 6 month intervals, to extend the delivery date for up to a total of 36 months from October 15, 2014. The agreement would terminate at the end of each deferral period, unless the option to extend is mutually agreed by both parties. If termination should occur, Sevan is entitled to a refund of its instalments less any agreed costs.
During the quarter, Sevan Drilling initiated an internal investigation regarding activities involving an agent under the company’s drilling contracts with Petrobras in Brazil. Sevan says that these contracts were entered into prior to the separation from the Sevan Marine Group and the subsequent listing in May 2011.
The company continues its investigation into the activities dating back to the separation from Sevan Marine.
“The company has also voluntarily notified the Brazilian authorities of our willingness to cooperate with any inquiry,” Sevan said on Thursday.
Challenges in rig market go on into 2016
In the report, Sevan notes that the ultra deepwater drilling market continues to remain challenging so far into 2015 and is expected to continue in this manner well into 2016 and possibly longer.
Sevan says that the customers continue to renegotiate contract rate reductions in exchange for extended term, which has added to the downward pressure on rates.
“When rigs become idle, contractors face the decision of whether the rig will remain marketable or scrapped. Older rigs are often seen to be scrapped due to the significant investment needed in classing,” Sevan explained.
In addition to the increase in scrapping, newbuild deliveries continue to be delayed which has changed estimates in the short term to forecast limited, or no growth, in the global fleet.
“The market has historically been cyclical and the long term view remains unchanged, that demand for ultra deepwater drilling will continue to be required to meet the world hydrocarbon demand. However, uncertainty remains in the timing of the recovery and to what extent,” Sevan said.
In its quarterly report, Sevan Drilling also said it had completed the Migration of its parent company from Sevan Drilling ASA to Sevan Drilling Limited, incorporated in Bermuda, on June 30, 2015. The old parent company, Sevan Drilling ASA, was delisted from the Oslo Stock Exchange, and the new parent company began trading on June 30, 2015. The group continues to use the ticker “SEVDR”.
Further in connection with the Migration, the Board has reconstituted itself to have majority non-Norwegian residents. Erling Lind resigned as Chairman and Director on August 26, 2015.
Lind will remain on the Sevan Drilling ASA board. The Board appointed Birgitte Ringstad Vartdal as Chairman and welcomed Svend Anton Maier to fill the vacancy on the Board.
Maier is the Senior Vice President, Americas in the Seadrill Group and is Norwegian and a resident in the US.
Offshore Energy Today Staff