As the offshore drilling rig sector continues to endure choppy seas with canceled orders adding to a mound of stacked rigs, ultra-deepwater rigs provided a glimmer of hope for Diamond Offshore.
The company reported this week that contract drilling revenue for its ultra-deepwater floaters jumped 73% to $315.7 million for second-quarter 2015, compared to a year ago. Revenue from deepwater floaters also increased, rising 50% to $181 million.
The increase was partly attributed to two newbuild drillships, the sixth-generation Ocean BlackRhino drillship and the Ocean BlackHornet, starting contracts in the Gulf of Mexico for Murphy Oil and Anadarko Corp.
“In addition, several other rigs returned to work in the quarter, namely the Ocean Victory and Ocean Onyx in Trinidad and the Ocean Valiant in the North Sea,” Gary Krenek, the company’s CFO, said Aug. 3 in a conference call. Plus, “unplanned downtime was significantly lower than in the first quarter which helped contribute to the overall increase in contract drilling revenue.”
Still, the positive showing was not enough to offset less revenue from midwater floaters, which plummeted 67% to about $97 million and from jackups, which fell nearly 50%. Diamond Offshore said it earned about $634 million in profit for second-quarter 2015, down from about $692 million from the same time last year.
As lower commodity prices continue to squeeze budgets, oil and gas companies are reining in spending both onshore and offshore. But companies have not closed the door completely on offshore E&P spending.
Marc Edwards, the company’s CEO, called the offshore drilling market “anemic.”
“Although our industry is cyclical in nature, we believe that any green shoots of a market recovery remain well over the horizon with industry fundamentals that today continue to look very challenging,” he said. “The ultra-deepwater market will remain weak due to the substantial number of rigs available for contracting, the high sublet availability and the significant reduction in contracting opportunities.”
Floater utilization has hit a 10-year low, he said, noting how tenders have been postponed or canceled worldwide. Diamond Offshore is no exception. In all, the company has cold-stacked 10 rigs and sold six rigs since second-quarter 2014, Edwards said. Pemex said it would terminate contracts on four rigs. Petrobras also terminated a contract.
“Despite these trends, Diamond Offshore continues to secure new works beyond what its market share would suggest,” Edwards said. “For example, during the past four quarters, Diamond Offshore has secured close to 25% of the available backlog despite owning less than 10% of the global floater fleet.”
Diamond Offshore has also taken delivery of Ocean BlackLion, which will work in the Gulf of Mexico. An ultra-deepwater harsh environment semisubmersible rig, Ocean GreatWhite, is set for delivery next year for work offshore Australia.
In addition, the company also secured an 18-month contract for the Ocean Apex drillship for a job in Australia starting in second-quarter 2016, Edwards said.
“This represents a significant win in what is a very challenging market at a rate that validates our capital investment to enhance the rig,” he said, later pointing out that the Ocean BlackRhino contract has been extended about seven months. The high-tech drillship completed a well 30 days ahead of schedule and $25 million under budget in the Gulf of Mexico, Murphy Oil said in July.
But the accomplishment doesn’t necessarily mean sixth-generation floaters will quickly replace older rigs. Markets remain for each type of assets, Edwards said on the call.
“We’re actually seeing quite a bit of noise around assets that aren't necessarily sixth-gen, the latest high-tech units. India is one of those examples,” he added. “It's going to be a long, hard drawn-out fight for the sixth-generation assets.”
Utilization rates for Diamond’s floaters rose 12% for both ultra-deepwater and deepwater floaters, which carried average day rates of $483,000 and $451,000 respectively.
“Given today's market conditions, it is worth reemphasizing that all five of our newbuild assets will be delivered with long-term contracts in place stretching into 2019 and 2020,” Edwards added. “Diamond Offshore has not had to delay the delivery of any of its newbuild assets.”
Velda Addison can be reached at email@example.com or via Twitter @veldaaddison.
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