Goldman Sachs, one of the banks at the heart of the 2008 Western financial implosion and multiple scandals and which presumes to pronounce on the fate of others, has issued a scathing commentary on the future of offshore drilling prospects.
In a note by one of its analysts Waqar Syed (plus team), Goldman tells the world that 2017 is going to be really tough.
“Industry is retiring floating rigs, but without rising demand, rig retirement will not solve the problem,” says Waqar Syed.
“Total marketed floater supply for end of 2015 stands at 280 rigs (313 total supply at the start of the year, less 31 rigs cold stacked already, less 21 rigs that we expect to be cold stacked, plus 19 scheduled newbuilds) of which 235 rigs are contracted (84%), while about 209 (74%) are currently working.
“With around 61 rigs under-construction and estimated to enter the market by year-end 2017 (after our slight haircut due to potential Petrobras cancellations, and at risk ‘On Order’ rigs) – and even if another 62 less capable rigs are cold-stacked or retired on top of the 31 currently cold stacked rigs – the industry will still have around 281 marketed rigs by 2017, of which about 234 (83%) will be high-spec (generations five and above).
“In our view, even if demand stays at the current level, utilisation would still be only 84% by 2017. However, we project that rig demand will continue to fall through 2017, as shales will continue to displace deepwater in the New Oil Order.”
Syed claims that, in his base case, expectation is that demand for offshore drilling tonnage will plummet an additional 8% by 2017, which will keep utilisation at 77%.
He continues: “We thus expect significant further idling of floating rigs and sizeable rate pressure on deepwater rigs.
“Only our bull scenario tightens the market to 2013 levels of 90% utilisation; it assumes low-single digit demand growth in 2016E and 2017E – in line with ex-Brazil historic floater demand growth rate – and additional rig retirement of 92 rigs, coupled with substantial cancellation of Brazil directed new-build rig orders.”
As if to put the boot in even more than Goldman already has, Syed cut Atwood Oceanics’ stock rating to “neutral” from “buy”, despite acknowledging that Atwood is “best-in-class”.
According to TipRanks.com, Syed is a three-star analyst with an average return of 5.5% and a 52.6% success rate, something for Energy’s readers to bear in mind.
However, it should also be born in mind that Goldman has also put out a very pessimistic forecast on oil prices, arguing that there will be a sharp drop come the autumn. Meanwhile, industry bellwether, Transocean has decided to park yet more drilling tonnage and put the brakes on some of its new-build programme.
The company says in its latest fleet update that its deepwater floater Marianas has joined other idle units along with the Celtic Sea and MG Hulme Jr, pushing the out-of-work rig count to nine units.
On the positive side, the Development Driller II, GSF Rig 140 and Sedco Express have had their current contracts extended by an average of around 80 days.
Development Driller II was extended at $315,000 per day for 100 days, GSF Rig 140 suffered a 40% day-rate reduction to $156,000 for 120 days, and Sedco Express was extended for 18 days with no rate change.
Turning to new-builds, the company has renegotiated construction contracts with Singapore’s Keppel FELS to further delay the delivery of its five high-specification jack-ups. This is in addition to the six-month delay announced in February. Transocean ordered the units in November 2013.