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Rystad Energy says… Offshore drillers to lose over US$3B in contract value from 2020 to 2021
The novel coronavirus as well as the recently concluded oil price war between Russia and Saudi Arabia have ravaged the global energy markets during the last two months. The effects were felt by many. But one of the most affected segments in the industry was offshore drilling says Rystad Energy.
In its most recent impact analysis, Rystad Energy said that drillers will continue to feel more blows as it estimates that they will see up to 10% of their contract volumes cancelled in 2020 and 2021. Rystad Energy said that this represents a combined loss of revenue totaling US$3 billion.
The estimated contract value in 2020–2021 is $30 billion in total; US$20 billion in 2020 and US$10 billion in 2021. So far, Rystad said that six rig years of contracts have been cancelled, translating to approximately US$400 million in contract value. Rystad said that these numbers will only increase as operators continue to slash capital expenditure budgets and delay projects.
Upon noting this finding, Rystad Energy’s Head of Offshore Rig Market Services, Oddmund Fore, said, “More than US$22 billion in contract value was wiped off the books as a result of contracts being cancelled between 2014 and 2017. Now, in the infancy of a new downturn, a market that was only beginning to return to a healthy level of contracting activity, contract volumes and day-rates has seen its hopes crushed.”
If anything was learned from the previous financial crisis, Fore said it was that such struggles can be brutal and can last a long time. He added, “Alas, there are plenty of reasons to expect that the battle that lies ahead for drillers will be considerably tougher than the one fought to get through the previous down cycle.” The Rystad Official was also keen to note that even top drillers will be at risk of failing to meet debt payments and may need restructuring.
Of the 100 listed energy service companies analyzed by Rystad Energy across the various service segments for this research, it was noted that more than two-thirds are unlikely to be able to meet their interest payment obligations on time this year. According to Rystad’s analysis, many offshore drillers will be living on the edge in the coming months.
Furthermore, Rystad’s analysis also shows that offshore drillers and offshore vessel providers will generally be unable to pay their total outstanding debt of 2020 based on their cash flow from operating activities, unless they are able to make sufficient capital expenditure cuts. If this does not happen, Rystad said that these companies will have to turn to capital markets for refinancing.
Especially in 2021, Rystad said that there will hardly be any contracts left to cancel while pointing out that the rig industry is particularly dependent on new contracting activity to maintain survivable levels of utilisation. Rystad added that new contracts will also be really difficult to secure in the current environment.
Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry.
Rystad Energy’s headquarters are located in Oslo, Norway with offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.
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