Seadrill Outlook Turns Gloomy As Oil Firms Cut Spending

West Capricorn, image (c) Seadrill

OSLO, May 28 (Reuters) – Seadrill, the world’s biggest offshore rig firm by market capitalisation, has turned gloomy about prospects for the global drilling market and expects falling charter rates as oil firms cut capital spending to protect margins.

Oil firms have for several months been cutting costs following a decade-long surge in investments.

But Seadrill, the crown jewel in shipping tycoon John Fredriksen’s business empire, had been more upbeat than peers due to its modern fleet and its specialisation in high-demand segments, such as drilling in deep and ultra-deepwater.

“It was not expected that activity would come to a virtual halt while oil companies worked through their forward budgeting process,” Seadrill said in a statement on Wednesday.

It expects rates for new-generation vessels to fall to $425,000-$475,000 per day, well below their peak around $650,000 per day last year.

This may hit the company hard, despite the major contract Seadrill subsidiary North Atlantic Drilling signed with Russia’s Rosneft at the weekend, as it has five rigs without contracts from this year and seven new-builds without contracts in 2014 and 2015.

Until the situation improved, Seadrill said it would not order any more new rigs from yards on top of 19 rigs it already has on order.

Seadrill’s downbeat tone echoes that of fellow driller Maersk Drilling, a unit of Danish shipping empire A.P. Moller-Maersk, which said last week the global offshore drilling market’s dip could last a further 18-24 months. It had previously said it would last 12-18 months.

On the plus side, Seadrill said it expected its earnings before interest, taxes, depreciation and amortisation to be better in the second quarter than in the first, as it reported January-March operating earnings above forecasts.

Its first-quarter net operating income came in at $890 million, above forecasts for $523 million in a Reuters poll of analysts, and also above the $552 million it posted in the same period a year ago.

Its shares were up 2.13 percent at 0818 GMT, beating a flat Oslo benchmark index. (Reporting by Gwladys Fouche; Editing by Mark Potter)

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