(Corrects to show figure is the drop instead of the level in fifth paragraph.)
Seadrill Ltd. (SDRL) expects the oil and gas drilling business and prices that the biggest rig company can charge to recover in 2016 as industry exploration revives.
Explorers that are planning to reduce investment over the next few years will need to increase it again once oil supplies dwindle and as prices of the fuel rise from current levels, Chief Financial Officer Rune Magnus Lundetrae said.
“They can wait a couple of years and not suffer too much,” he said today in an interview in Oslo. “But if they wait too long, they will lose competence, they’ll lose half a generation of engineers like they did in the 90s, and they’ll struggle to show positive reserve replacement.”
Explorers from Statoil ASA (STL) to Royal Dutch Shell Plc (RDSA) have cut investment plans to protect cash flow as rising costs and stagnating energy prices erode profit. London-based Seadrill last month said market growth would be slower than expected and it would keep dividends unchanged for a few years. Fred Olsen Energy ASA CFO Ivar Brandvold also sees the industry stalling.
While Seadrill won’t order more new rigs for 2016 delivery, it doesn’t plan to shut any rigs, Lundetrae said, declining to estimate by how much rates could fall before recovering. It can “live with” day rates falling by $50,000, he said.
“The world will need oil,” Brandvold said. “We need to see sustainable energy prices, and they will need to rise.” The rig market will consolidate for a “couple of years” before activity rises again at a less dramatic rate than previously.
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