Seadrill Warns of Further Cost-Cutting in 2016

Seadrill revealed that it will be cutting costs by approximately $340 million this year, warning that the offshore drilling market “remains challenging”.

During the first quarter of 2016, vessel and rig operating costs for the group declined by $79 million, resulting in a sequential increase of approximately 6 percent to the company’s operating margin. The improvements came from reduced stacking costs and improved operating costs on Seadrill’s working fleet. The company stated that $305 million of its $340 million planned saving for 2016 will come through “sustainable cost savings” and $35 million will be from deferred spend.

“The offshore drilling market remains challenging. Despite the increase in oil prices from the 12 year low of $27 per barrel during the first quarter, prices remain 60 percent below their 2014 highs,” Seadrill said in its 1Q results statement.

“Short term supply disruptions have had effects on the oil price, indicating the market is closer to a supply demand balance than it has been for some time. Focus from our customers’ remains on balancing the books in 2016 and 2017 with respect to revenue and planned expenditures. Major oil companies continue to cut activity levels for 2016 and 2017 and appear to have more rig capacity already under contract than they require, severely affecting new demand and leading to contract renegotiations and terminations. New fixtures continue to be primarily extensions, often blend and extend agreements. A more sustained period of recovery and price stability is needed before we expect to see increased demand from oil companies,” Seadrill went on to state.

Seadrill’s operating income dipped 53 percent year on year to $328 million in the first quarter of 2016, amid a revenue decrease of 28 percent to $891 million.

“During the first quarter we achieved record operational uptime and we continue to see the benefits of our cost reduction program coming through. Our key priorities for the year are cost reduction, managing newbuild deferments and concluding our financing plans, while ensuring that we continue to maintain safe and efficient operations. I am pleased to say we have made good progress in all three areas during the first quarter,” said Seadrill Management Ltd CEO and President, Per Wullf, in a company statement. 

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