Offshore Drilling Market Dip May Prolong

The global offshore drilling market's dip could be longer than previously expected and charter rates could take until 2017 or 2018 to recover to last year's levels, the head of Maersk Drilling said on Thursday.

Oil groups continue to delay projects to save cash and rig rates will fall further just as a slew of new vessels ordered during the boom years start to hit the water, said Claus Hemmingsen, the CEO of Maersk Drilling, part of Danish shipping conglomerate A.P. Moller-Maersk.

"With every quarter that goes by with next to no new projects sanctioned and next to no new deepwater rigs contracted, the recovery is pushed out a little bit," Hemmingsen told Reuters.
Analysts at Barclays say that 13 newly built floating rigs due to enter the market this year are still without contracts.

Hemmingsen now expects the market dip to last a further 18-24 months, having predicted in the previous quarter that it would last 12-18 months, and sees charter rates hitting the bottom over the next several months.

His comments match forecasts by rig firm Fred Olsen , which has said it expects tough times for the sector for at least another two years.

Hemmingsen added that charter rates, which peaked at about $650,000 a day for top of the line ultradeep water units last year, would fall to $500,000 a day or even lower in some cases.
"But if you look at the long term requirements for deepwater drilling, the rigs available and the order backlog, then by 2017 or 2018 I would expect rates close to being on par with what you saw in 2013," Hemmingsen said. "The projects are there and the economy is gradually picking up."

Maersk Drilling, like many of its global peers, has struggled to pick up new contracts this year and its order backlog shrank to $7.4 billion at the end of the first quarter from $7.9 billion at the end of last year.

However, Maersk needs more vessels to meet its long term growth targets and despite the industry's dip, Hemmingsen would not rule our further orders.

"We will still have an interest to grow Maersk Drilling to a bigger size than where we are today ... and I would still have the appetite to order a couple of rigs within the next 12 months," he said.

(By Balazs Koranyi)