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Downturn in offshore drilling industry to continue – Moody’s

Moody'sMoody’s Investors Service says the downturn in the offshore contract drilling industry is expected to continue, and would weaken the credit quality of offshore drillers through 2017, due to low oil prices and a persistent oversupply of rigs, the agency said in an email to ghanabusinessnews.com.

The rating agency’s report titled “The Worst Is Yet To Come For Offshore Drillers”, makes the observation that fewer drilling opportunities in the marketplace are making drillers desperate to win contracts and minimize operating costs.

The report predicts that oil prices will remain low through 2017 due to global factors such as greater production efficiency, the strategic need for certain nations to maximize oil production, slowing growth in China, a strong US dollar, and the possibility of new supply coming online from Iran.

Moody’s predicts that if crude prices remain near the $40 to $50 per barrel range, then dayrates for offshore drillers – the amount an oil company pays drillers per day to operate an oil rig – which has been affected by overcapacity, will fall further and approach cash break-even cost levels in some markets.

“Dayrates for offshore drillers will remain under pressure as upstream companies look to trim costs and continue to drill conservatively in a low oil price environment,” the agency said.

A high supply of new rigs through 2017, and low demand from low oil prices, is expected to restrain drilling activities in the higher cost deepwater/ultra-deepwater rig markets while shallow water markets are expected to experience similar supply pressures but not as much reduction in demand.

“The rig industry’s overcapacity problem could last for several years. Older rigs will not retire easily and new rigs will keep coming with any positive development in the market,” Sajjad Alam, an Assistant Vice President and Analyst at Moody’s said.

“Companies that can reduce debt, minimize capital spending and maintain conservative financial policies are more likely to avoid ratings downgrades during this down-cycle,” Sajjad Alam said.

By Emmanuel Odonkor

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