Maersk Drilling upgrades full year profit guidance

Maersk Drilling, a drilling contractor part of Denmark’s Maersk Group, delivered a profit of $164 million for the second quarter of 2016. 

This is a drop compared to the profit of $218 million realized in the second quarter of 2015. Revenue was $566 million, down 9.3% from $524 million a year ago. Revenue backlog was $4.7bn by end-Q2 2016.

While the profit might be lower, it’s still a profit, and the driller said it’s been benefiting from strong contract coverage secured during the healthier times in the industry. Revenue backlog was $4.7 billion by end-Q2 2016.

However, the company said it expects its future earnings to be impacted by the currently depressed drilling market, which is expected to remain challenging over the medium-term.

Maersk drilling had five rigs without a contract by end-Q2 2016. Another five rigs will come off contract during the remainder of 2016. Still, the company expanded its fleet in the second quarter. It bought a newbuild harsh environment jack-up rig from Hercules Offshore for only $190 million, and on top of that, the rig comes with a 5-year drilling contract worth $420 million.

The economic utilization of the fleet for Q2 was 83%, negatively impacted by five rigs being idle or partly idle.

“Oil companies continue to respond to lower oil prices by reducing future investment plans, postponing or canceling offshore development projects and re-allocating capital to lower cost, lower risk onshore projects. The combination of lower activity levels in the oil industry and deliveries of newbuild rigs continues to drive lower utilization levels and lower dayrates,” Maersk Drilling said.

The company said that in response to the challenging business environment it continues to identify and drive cost savings to increase profitability and cash flows.

Costs slashed

In the second quarter 2016, Maersk Drilling reduced costs by 8% compared to Q2 2015, adjusted for exchange rate effects and number of rigs in operation. Since the launch of the cost reduction and efficiency enhancement program in Q4 2014, Maersk Drilling has reduced cost by more than 15%.

“The cost savings have been achieved primarily through a strong focus on operational and maintenance costs, but also by optimising yard stays, vendor re-negotiations, reduction of staff onshore, layoffs of rig crews as well as salary reductions and salary freeze and general optimisation to the operations,” the company said.

Furthermore, the company said it was looking at new operating models for the way contractors and oil companies work together in order to reduce costs and to de-risk increasingly complex projects in the upstream industry.

Profit guidance up

Providing guidance for the full year, Maersk Drilling now expects an underlying result below last year’s $732 million. This is an upgrade from the company’s previous expectations, when it said the results would be significantly lower than in 2015. Providing rationale for the guidance upgrade, the driller said the result would be positively impacted by rig contract termination fees.

To explain, In July an early termination agreement for the deepwater unit Maersk Valiant was signed with effect from mid-September 2016. The original contract was scheduled to end September 2017. While the contract was terminated, leaving rig out of work, Maersk Drilling received the full compensation for the original contract.

Offshore Energy Today Staff