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  • Heard about the big offshore rig sale?

  • Easy credit!

  • Deepwater oil rigs, all the latest bells and whistles available cheap.

  • Come and get them.

  • You know really, it's almost that bad in the offshore drilling market.

  • Well, in gas producers have had to put pressure on their suppliers.

  • And whenever possible, these energy companies, they've delayed projects,

  • especially the more costly offshore ones.

  • For those that build and operate offshore drilling rigs, the nightmare may have only just begun.

  • So rig owners have spent hundreds of millions of dollars to construct

  • each one of these sophisticated bits of deepwater kick.

  • Meanwhile, the day rental rates for these have halved to about 2500 dollars since 2014.

  • And another 35 new rigs are due for delivery in the next few years.

  • That will add 15% of supply without enough work for them.

  • Now any debt raised to build these rigs looks less secure with each passing month.

  • These liabilities already make up 80% of the enterprise value.

  • That's market value plus net debt of the 16 listed rig companies in the US and Norway.

  • That means essentially that the market believes the sector is bust.

  • Not to worry, though.

  • Some investors are snapping up any available distressed debt; indeed,

  • some rig providers have already gone through that restructuring.

  • For example, in December, Vantage Drilling in the US, which is three deep water drillships, filed for bankruptcy.

  • And whereas the old vantage had high cost, mostly due to its interest payment,

  • new and restructured vantage has the lowest estimated break-even cost in this group.

  • Vantage can afford to offer lower day rates than rivals,

  • and according to its online homepage, it's even keen to hire more workers.

  • So other distressed rig companies such as Hercules Offshore and Paragon are similarly adjusting their costs.

  • The analysts of D&B see a trend of contractors preferring to keep a rig working rather than removing it from supply.

  • The largest rig owners, Seadrill of Norway and Transocean and even lowest cost provider Diamond Offshore,

  • 22 billion in growth debt between all of them can only watch nervously

  • as the newly restructured companies offer customers more discounts in the coming year.

  • Come on, come all!

Heard about the big offshore rig sale?

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B2 FinancialTimes rig offshore vantage debt drilling

Roll up! The oil rig giveaway | Short View

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    Kristi Yang posted on 2016/02/26
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