Odfjell Drilling expects the deepwater rig market to remain weak over the next couple of years, due to the continued delivery of newbuild units and oil companies’ increased cost focus and capital discipline.

This will result in an increasing number of stacked units, and continued downward pressure on day rates, it says. The contractor has a fleet of three 6th generation ultra-deepwater and harsh environment semisubmersibles, two 6th generation ultra-deep drillships (40% owned through the Deep Sea Metro JV), and a third generation midwater semisub.

Odfjell went on to warn that “several of these units are exposed to recontracting risk in the current or near term drilling market”.

The company already has the problem of its Deepsea Metro I drillship being currently out of contract, with the Deepsea Metro II and Deepsea Atlantic both exposed to recontracting risk in the next six months. Its Deepsea Stavanger rig is also exposed to recontracting risk in 2016, with the Deepsea Bergen unit also exposed as of 2017.

“There are contract opportunities for all of our units in the current and near term market, but competition is fierce and reduced dayrates alone do not clear the market. We believe the bifurcation between modern drilling units and older units will continue and this is in favour of our fleet. Scrapping and cold-stacking of older units will pick up speed but despite this, we expect the deepwater and ultra-deepwater market to be oversupplied for a period going forward. We believe the harsh environment market to be relatively more in balance for modern assets, but also here we expect a drop in utilisation.”

Due to the overall challenging market conditions, further cost cuts and efficiency improvement programs are also in the process of implementation. In the longer term, Odfjell says it expects the oil industry’s demand for drilling services to continue to be supported by the need for reserves replacement, and by continued spending on exploration and field development in the main offshore regions.

Amongst the fourth quarter 2014 highlights was the delivery of the newbuild Deepsea Aberdeen from the construction yard in November, with the unit in transit to start its 7-year drilling contract with BP west of Shetland. The contract is expected to start in March. An amendment to the BP contract extends the commencement window until middle of June 2015, it added.