- Det Norske expects ``extremely favorable'' rates in contract
- Rig operators facing slump as producers slash spending
An unusually high number of rigs are competing for a Det Norske Oljeselskap ASA drilling contract in the North Sea, an illustration of how companies are desperate for business as producers slash spending amid a crude-price slump.
“I’ve tendered for rigs on the Norwegian continental shelf many times, and I’ve never seen a tender with 13 rigs competing for the job,” Det Norske Chief Executive Officer Karl Johnny Hersvik said in an interview Wednesday. “That’s a pretty extraordinary figure.”
Thanks to the fierce competition among drillers starved of contracts, Det Norske expects to pay “extremely favorable” rental rates and get “very flexible” terms for the 300-day contract for a semi-submersible rig that it’s seeking for the Alvheim oil field, Hersvik said.
Offshores drillers such as Transocean Ltd., Seadrill Ltd. and Fred Olsen Energy ASA have been caught in a double whammy of falling demand for their services and a glut of new rigs coming into the market. In Norway, Statoil ASA, the dominant state-controlled oil company, has cut the equivalent of four years of drilling by terminating and suspending rig contracts over the past 18 months, adding to the oversupply.
“It’s a desperate situation for the rig companies and a very pleasant situation for the oil companies,” analyst Truls Olsen of Fearnley Securities AS said in a phone interview. “Typically, less than a handful of rigs have been involved in tenders like this” and the number of companies vying for Det Norske’s contract “must be a record for Norway,” he said.
“It’s a very challenging market, and we don’t see any big changes in 2016,” said Joergen Arnesen, CEO of China Oilfield Services Ltd.’s European drilling subsidiary, which had a contract for its Pioneer rig terminated by Statoil earlier this year. Arnesen declined to comment on Det Norske’s tender.
The daily rental rate for Det Norske’s rig will be lower than a recent award to Odfjell Drilling Ltd., which will get about $300,000 a day to drill on Statoil’s Johan Sverdrup field for three years starting in March 2016, Nordea Markets analyst Janne Kvernland said by e-mail. That’s about half of what Odfjell’s Deepsea Atlantic rig is currently earning.
Next year will be “ugly” for the rig market, Seadrill CEO Per Wullf said last month. The Hamilton, Bermuda-based driller could be willing to accept day rates of as low as $160,000 on very short contracts if they allow the rig to stay active and bridge a gap in its work schedule, he said. The company won’t accept less than $350,000 to $400,000 a day for longer deals, Wullf said.
Det Norske expects to award the contract, which will also include options that are “much longer” than the initial period, “quite soon,” Hersvik said.