Seadrill Sees Order Backlog As Rigs Remain Costly & Scarce

Seadrill , the world's biggest rig operator by market value, has a backlog of orders in Latin America totalling some US$2.62bn. The backlog is for semi-submersible rigs and drillship leases used in exploration that is currently booming in Latin America's deepwater. The orders include some US$1.95bn in Brazil, US$632mn in Mexico and US$37.5mn in Colombia. Our bullish forecast for oil production in Brazil and Colombia will see sustain ed demand for rigs in these markets . With efforts to tap Mexico's highly prospective Gulf of Mexico (GoM) resources intensifying , demand for these advance rigs should also remain high as exploration activity grows.

Brazil Leads, Colombia Posts Gains And Mexico Dips But Remains High
Colombia, Mexico & Brazil Oil Production, 2012-2021 ('000b/d)

T he order backlog and high rig utilisation rates formed the basis of Seadrill's strong Q312 results, which saw net income rise year-on- year from $58mn to US$216mn, although operating profit slipped and the company reported a US$53.3mn loss on its majority stake in oilfield services company Archer . However , the company ' s record US$21.3bn in total backlog orders reflect s a healthy global drilling industry . High prices are supporting strong demand for offshore rigs, particularly for the limited number of high specs rigs available globally that are capable of operating in deep and ultra-deepwater plays.

The company has reported particularly strong growth from Brazil , which according to data from R igzone, has among the highest utilisation rates in the word. A t 96.1% , rig utilisation rates are up from 83.3% the previous year.

Brazil Leads Offshore Rig Race As SubSalt Wets Drillers' Appetite
Rig Utilisation Rates By Selected Region (in %)

With some 22 units under construction, including seven ultra- deepwater drillships and two ultra-deepwater semi submersible rigs, Seadrill is in a strong position to profit further from global demand for advance rigs as both international oil companies (IOCs) and national oil companies (NOCs) target deeper offshore prospects. Our forecasts for global oil prices to remain historically elevated will support the commercial feasibility of these costly offshore developments .

According to Seadrill's Q3 12 results statement, the tight global rig market is set to continue into 2014 and 2015, and the company ' s current aggressive building program me aims to capitalise on low shipbuilding yard rates in the wake of the financial crisis and near record- high daily rig hire rates. Indeed , ultra - deepwater rates are currently at US$550,000 to US$650,000 per day. In November 2012, Seadrill announced it was contemplating further new builds in order to further cash-in on demand.

Global Benchmarks Remain Elevated, Supporting Rig Demand
WTI & Brent Crude Benchmark Price (US$/bbl)

With Mexico looking to further develop its latent GoM oil and gas resources, an ambitious subsalt drilling campaign led by Petrobras, and offshore licensing rounds in Colombia, we predict strong demand for rigs to continue in Latin America.

However , this is a global trend , with the US GoM, the e ast and w est coasts of Africa, and the Black Sea among the area s where we expect to see continued interest in deepwater exploration. A tight market for rigs, with limited spare capacity and high daily rates, has left drilling schedules under pressure and seen campaigns delayed on the back of rig unavailability . This could pose downside risk to certain projects and their operators, and has the potential to impact our forecasts to the downside should key developments be delayed.

This article is tagged to:
Sector: Oil & Gas
Geography: Latin America, Latin America, Brazil, Colombia, Mexico, Latin America, Latin America

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