Offshore oil-rig operators, grappling with the biggest industry downturn in a generation, say they finally have the bottom in sight. The problem is, they could be stuck there for a long time, Bloomberg reports.
Utilization for floating units will reach bottom toward the middle of next year, says Mark Mey, chief financial officer for Transocean Ltd., which owns the biggest offshore-rig fleet in the world.
The number of floating rigs on contract and working is expected to fall to about 120 in the middle of 2017 from about 160 currently, Mey says.
Meanwhile, Seadrill Ltd., which owns the third-largest fleet, says utilization could stabilize as soon as the beginning of next year, and that rental rates had already bottomed out.
Seadrill says utilization rates will need to reach 70% across the industry before rates start improving while Transocean and financial services company IHS Markit estimated 85%.
Offshore drillers have been pounded by the collapse in crude prices in the past two years as oil companies slashed spending to protect their cash flow and shareholder payouts.
Their predicament has been exacerbated by a wave of new rigs coming into the market that were ordered when demand was strong.
Rig operators have reduced costs dramatically, but still have had to cut dividends, defer delivery of vessels and suspend or scrap existing ones.
It could take as long as a year before utilization bottoms out, says Tom Kellock, a senior consultant at IHS Markit Ltd. As many as 60 more floaters need to be permanently scrapped, according to both Seadrill and IHS Markit.
