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Oil Drilling Slowdown to Last 12-18 Months

Maritime Activity Reports, Inc.

February 28, 2014

By Balazs Koranyi, Reuters

The current slowdown in offshore oil and gas drilling will last 12 to 18 months, and the market for rigs will rebound in 2015, Maersk Drilling said, providing a more optimistic forecast than other drilling firms.

Oil companies are only delaying projects, Claus Hemmingsen, the chief executive of Maersk Drilling, a unit of Danish shipping conglomerate A.P. Moller-Maersk, told Reuters on Friday.

"I would rather call it a short-term softness than anything dramatic," Hemmingsen said in a telephone interview. "We see postponements, not cancellations, and I think that distinction is important."

Activity in the deep waters off West Africa and Brazil will suffer the most, he said. "There's two regions when you talk about deep water that stand out - that is West Africa and Brazil."

Other drilling companies have warned that the market could be slow for the next two years as oil majors delay projects and cut capital expenditure to save cash for dividends, while drilling companies add new vessels, creating overcapacity.

Analysts expect oil and gas capital spending to rise by 4-6 percent this year, a big drop from years of double-digit growth as the biggest offshore drillers such as Shell, Chevron and Statoil cut their budgets the most.

Transocean, which owns the world's biggest drilling fleet, predicted on Thursday it would take 18 to 24 months for demand to recover.

Seadrill, the world's biggest offshore driller by market capitalisation, warned this week that the sector would slow over the next two years.

But Hemmingsen foresaw that the dip in the market would last for 12 to 18 months.

"I actually think it's (going to be) shorter, because I see some activity and interest," he said.

"We'll see the market returning to a strong balance of supply and demand," Hemmingsen said. "These projects that are being postponed will come back. In 2015 and beyond, we'll see the market continuously on the strong side."

Hemmingsen said Maersk, which take delivery of six new rigs this year, will need several more units to meet its 2018 target for a $1 billion net profit but that no newbuild orders were imminent.

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