Maersk Positions Self for 'New Oil Reality' as Profit Fall
Denmark-based Maersk Drilling is positioning itself for a “new oil reality” of reduced tendering activity for offshore rigs and lower dayrates across all rig market segments by introducing cost-cutting and efficiency enhancement programs to boost its competitiveness in the current market.
The global drilling market has deteriorated as the downturn in global oil prices has spurred operators to scale back exploration and development budgets. Drilling contractors such as Maersk, Transocean Ltd., Hercules Offshore Inc., Diamond Offshore Drilling Inc., Noble Corp. and ENSCO plc have been faced with deciding whether to continue to market rigs or coldstack active rigs, as well as retiring older or long-idled rigs.
Maersk expects competition to intensify among rig contractors this year across all floater segments, the company said in its Feb. 26 earnings presentation. The combination of reduced exploration spending, along with the large number of newbuild rigs being delivered, have significantly changed the global supply/demand picture.
Despite the near-term cost cutting and other steps Maersk is taking, the company anticipates its underlying 2015 profit to be higher than the level seen in 2014, and also remains positive on the long-term market outlook.
The company is maintaining its long-term financial aspiration, “but the required additional units to reach the target will only be added against solid, long-term contracts,” said Claus V. Hemmingsen, CEO of Maersk Drilling and member of the Executive Board in the Maersk Group, in a Feb. 26 press statement.
Planned yard stays for maintenance, the start-up of newbuild rigs and impairments offset Maersk Drilling’s high operational uptime and divestment of Venezuela assets in 2014.
Maersk saw its revenue increase to $2.1 million in 2014 from $1.9 billion in 2013, while net operating profit after tax declined to $478 million from $528 million in 2013, Maersk reported Thursday.
The company said its results were positively impacted by a $73 million after-tax gain from the sale of its 10 cantilevered drilling barges in Venezuela to Barrystar Holding S.A. and strong operational performance across its fleet. However, the company’s financial results were hurt by impairments of $85 million, or $73 million after-tax. These impairments included a $50 million ($38 million after-tax) impairment related to its Egyptian Drilling Company joint venture.
Maersk also incurred additional operating cost last year related to the start-ups and operational expenses for five newbuild rigs that started working last year and start-up costs for three remaining newbuild rigs to be delivered this year and in 2016. The cost level on the existing fleet excluding newbuilds was on level with costs seen in 2013, Maersk noted.
In 2014, Maersk took delivery of Maersk Viking (UDW drillship), Maersk Valiant (UDW drillship), and Maersk Venturer (UDW drillship), the first three rigs in a series of four ultra-deepwater drilliships, from Samsung Heavy Industries in South Korea. The company also took delivery of Maersk Intrepid (492’ ILC) and Maersk Interceptor (492' ILC) from Keppel FELS in Singapore, the first two rigs in a series of four ultra-harsh environment jackups. All five rigs commenced operations in 2014. The company completed five yard stays and two offshore upgrades, making 2014 “a very busy year”.
Operational uptime averaged 97 percent, the same level seen in 2013. As of the end of last year, Maersk’s forward contract coverage was 80 percent for this year, 52 percent for 2016 and 30 percent for 2017. The total revenue backlog by the end of 2014 amounted to $6 billion, down from $7.9 billion. Return on invested capital (ROIC) was 7.1 percent, down from 10.8 percent in 2013.
Looking forward, the company aims to achieve net operating profit after tax of $1 billion in 2018 and ROIC of more than 10 percent. It also will seek to secure contracts for the Maersk Venturer (UDW drillship) and Maersk Voyager (UDW drillship) and to secure contracts for rigs rolling off contract this year.
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Senior Editor | Rigzone