Seadrill Ltd., the offshore rig operator controlled by billionaire John Fredriksen, says the worst market downturn in a generation has finally hit bottom, even if a recovery is still a couple of years off.
“From a drillers’ perspective, we’re now at the bottom of the market rate-wise,” Chief Executive Officer Per Wullf said in a phone interview from London. “It can’t get any worse.”
While the price of Brent crude rose past $50 a barrel for the first time in more than six months, it will need to remain stable for longer for oil companies to hire more rigs, boosting a utilization rate that’s only 56 percent for floating units globally, Wullf said. Utilization won’t get “much worse than now,” but it could be at least a year before it improves, and only then will rental rates start to do the same, he said.
“We know 2016 is ugly, we know 2017 is ugly,” the CEO said. “It’s not fun until 2018.”
Crude’s collapse since 2014 has pummeled offshore drillers such as Seadrill and Transocean Ltd. as it led their clients, the oil companies, to slash spending, reducing demand just as a wave of new rigs was already inflating supply. Day rates for the most advanced rigs have fallen to less than $250,000 compared to as much as $650,000 at a 2013 peak as drillers accept lower pay to get new work or extend existing contracts.
Seadrill, whose first-quarter earnings beat estimates earlier Thursday, will probably announce more blend-and-extend deals with clients, where extensions are coupled with other amendments, during this quarter, Wullf said.
Seadrill faces the highest debt burden among its peers at almost $10 billion, and is negotiating a restructuring with all stakeholders. The plan has entered its second phase with full backing from the board, led by Fredriksen, and should be finalized by the end of the year, the CEO said. Analysts from banks including Nordea AB and DNB ASA have estimated the final agreement will include at least $1 billion in new equity.
“Our package of course includes some new capital in some form,” Wullf said. “The analysts have guessed pretty well” on the scope of the capital need, he said, declining to provide more specifics.
The recent sale of a drillship called Cerrado for less than 10 percent of its 2011 new-build price was seen by some analysts, including Alex Brooks of Canaccord Genuity Ltd., as bad news for rig-owners and their creditors. That deal, which saw Ocean Rig UDW Inc. buy the vessel for $65 million, won’t affect Seadrill’s refinancing or have any impact on the market, Wullf said.
“We cannot be the slave of one or two deals being done,” he said.
Seadrill wouldn’t be interested in this kind of acquisition until it strengthens its finances, Wullf said. The CEO even said the drillship was overpriced, considering the market outlook.
“A rig like this, that hasn’t worked for a year, that’s had different owners, it would probably be very hard to justify to pay more than was paid for it — and it was probably too much to be honest,” he said. “It’s pure liability.”