Norway's Biggest Bank Sees Offshore Downturn Lasting to 2020

  • Market may have reached bottom but will remain weak: DNB
  • Debt restructurings seen taking longer than expected

DNB ASA, one of the biggest lenders to the offshore energy industry, sees the market slump lasting until 2020 as the collapse in crude prices drags down drillers and supply ship operators.

The market crash would resemble a “very long U,” or even an “L,” the bank’s head of Shipping, Offshore & Logistics, Kristin Holth, said in an interview.

“The bottom might be here, but it will be long,” she said. “That’s the challenge facing the companies -- they have such a long period with low liquidity ahead.”

Offshore drillers to supply-vessel operators and engineering firms are suffering from a drop in investments as oil companies rein in spending for a second consecutive year to weather the worst crude market in a generation. A plunge in demand and rates has put pressure on oil-service providers, with some already filing for bankruptcy and many more negotiating with creditors and other stakeholders to restructure their debt load.

Seadrill Ltd., the offshore driller with the biggest debt load, last week reached an agreement with banks on a first step in its refinancing, pushing back a target for a total solution to the end of the year from June previously.

Restructuring processes in the industry will take longer than expected, said Holth, whose bank’s oil-related loan portfolio reached 155 billion kroner ($19 billion) in exposure at default at the end of the first quarter.

Holth now sees the offshore supplier industry’s downturn lasting until 2020 compared with her forecast of a possible recovery in 2017 seen less than a year earlier.

“The downturn has been steeper and faster than expected,” she said. “So we need solutions that stretch further into the future than expected, and that’s more demanding for all parties.”

Debt restructuring processes can lead to both vertical and horizontal mergers, Holth said.

“You should get interesting constellations from this,” she said. “I hope we get new, strong constellations that allow us to keep technology and units in Norway, but maybe larger units than before. ”

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