Sevan Drilling swings to loss as lower dayrates bite
Deepwater drilling contractor Sevan Drilling went from black to red during the third quarter of 2016. Looking ahead, Sevan forecasted another challenging year in the offshore drilling business.
The driller on Tuesday posted a net loss of $53.1 million compared to a $26.4 million profit in the same period last year.
The company’s operating revenue for the third quarter of 2016 dropped to $59.6 million compared to the one in the same period last year that amounted to $98.4 million.
According to the company, the decrease in revenue is primarily due to the Sevan Driller rig operating at a lower dayrate on the well service contract which concluded on July 23, 2016. In addition to the Sevan Brasil operating at an amended lower dayrate for the full quarter.
The Sevan Louisiana rig achieved a 3Q 2016 technical utilization while on contract of 98.3% (97.5% in 3Q 2015), Sevan Brasil 99.3% (91.2% in 3Q 2015) and Sevan Driller for the days under contract was 98.7% (100% in 3Q 2015).
Total operating expenses were $93.6 million compared to $56.7 million in 3Q 2015. Vessel operating expenses were $35.8 million compared to $34.1 million in 3Q 2015. The increase is mainly attributable to costs relating to the mobilization of Sevan Driller to China offset by further cost savings in the period.
During the quarter, the Sevan Drilling rigs achieved technical utilization of 98.8% and economic utilization of 99.4%. At November 22, 2016 the fleet’s contracted backlog revenue is $220 million, excluding option and extension periods.
While the company’s long-term view of the market for high specification drilling rigs remains positive, the offshore drilling sector remains extremely challenging in the near term, Sevan said in its 3Q report. Oil prices remained in the $40-50 range during the third quarter, a level that is not sufficient to reverse the declines in oil company upstream spending. It is expected that upstream spending will again decline in 2017, even though less than previous reductions of approximately 27% in 2016 and 24% in 2015, the offshore driller stated.
Sevan further noted that, while the forecasted decline in spending sets the stage for another challenging year in the offshore drilling business, it is important to recognize the resetting of costs across the value chain. This may facilitate increased activity on a year over year basis with only a marginal increase in commodity prices if accompanied by pricing stability. The current downturn in the floater market now has the distinction of being the worst downturn in the history of offshore drilling both in terms of duration and absolute demand.
The peak to current demand drop of 40% is double the average witnessed in prior cycles. There is an increasingly active market for short term work, albeit at operating cash flow breakeven dayrates. Sevan Drilling concluded that even with this small improvement from a very low base, utilization in the floater market will likely gets worse before it improves.