Maersk Drilling slips deeper into the red

Danish offshore driller Maersk Drilling recorded a bigger loss for the full year 2017 compared to its result in 2016 affected by impairment charges due to it being classified as discontinued operations.

Maersk Drilling as well as the offshore vessel division of the Maersk Group, Maersk Supply Service, were classified as discontinued operations and assets held for sale in 2017 as part of the group’s efforts to separate its oil and gas-related business from the rest of the group.

The group expects to find a structural solution for both businesses before the end of 2018.

According to financial statements released on Friday by Maersk Drilling’s parent company, the driller reported a loss of $1.5 billion for the full year 2017 negatively impacted by an accounting impairment of $1.75 billion net of tax prior to classification as discontinued operations. In the year before, the driller’s loss totaled $709 million.

The result was further negatively impacted by a number of idle rigs and the expiration of contracts signed at higher day rates and an accounting loss from sale of the shares in Egyptian Drilling Company of $47 million. The result was positively impacted by high operational uptime and cost savings.

The result for 2016 was negatively impacted by impairments of $1.5 billion.

The operational performance across the fleet resulted in an average operational uptime of 98% for the jack-up rigs and 98% for the deepwater rigs. The operational performance remained the same when compared to 2016.

By the end of the fourth quarter of 2017, Maersk Drilling’s forward contract coverage was 63% for 2018, 35% for 2019 and 25% for 2020. The total revenue backlog amounted to $3.3bn at the end of 2017 compared to $3.7bn in 2016.

No improvement until oil price stabilizes 

Maersk said in its report on Friday that, despite an increase in oil price, activity levels in the offshore drilling industry declined for the third year in a row. The total number of floaters on contract decreased by approx. 14% to 150 units when compared to 2016, while jack-up rigs decreased by approx. 3% to 320 units. Maersk Drilling does not expect to see significant improvements in offshore rig demand until the market reaches a stable oil price above $60 per barrel or until lifting cost levels adjust to a lower oil price.

In conjunction with the weak demand for drilling rigs, the significant excess capacity in global rig supply continues to adversely affect the offshore drilling industry. Capacity reduction in the offshore drilling fleet continues to be negligible and the newbuild orderbook remains all but unchanged compared to 2016. Without a considerable improvement in offshore rig demand, this confluence of factors is expected to result in total industry utilization and day rates to remain depressed.

Leading indicators, however, showed signs of support for future drilling rig activity. Buoyed by an increase in tendering activity, the number of contracts awarded globally has risen approx. 20% compared to 2016, while the average duration of these contracts remained largely unchanged.

Offshore Energy Today Staff