HOUSTON – Offshore rig contractor Transocean will likely shut down or retire more of its drilling rigs as falling oil prices deepen a glut in deep-water rig equipment, executives said Monday.
The current market is “incredibly challenging,” said Terry Bonno, senior vice president of marketing for Transocean, during a conference call with investors early Monday. In a better market, she added, Transocean’s newly built rigs, soon joining the business, would be welcome news. But an oversupply of drilling machines means it may have to cut back on older rigs — some of which have already been shut down, or “cold-stacked” — as lower oil prices constrain operators’ budgets.
“I would expect if you look at our older class rigs that are pretty long in the tooth and that don’t have follow-on work, I think those would be the first we would sell off,” Bonno said. There are opportunities for some rig work in the Gulf of Mexico and West Africa but “there is going to be some idle time. It’s going to take time to play out.”
During the call, Steven Newman, president and CEO of Transocean, declined to say how many rigs the company may retire.
“Assets that we have in our fleet that are cold-stacked and have been cold- stacked for any period of time are likely candidates for retirement,” Newman said. “If we conclude that there’s very little likelihood of that asset ever returning in an economic way to compete in the marketplace, then we’re likely to make the decision to scrap it.”
Transocean lost billions of dollars in the third quarter as it faced sinking demand for offshore rigs and as it wrote down the value of its drilling business.
The Swiss rig operator posted Sunday a net loss of $2.22 billion, or a loss of $6.12 a share, in the July-September period, compared to income of $548 million, or $1.48 a share, in the same period last year. Revenues fell from $2.45 billion to $2.27 billion.
The company blamed the decline on lower revenue efficiency, which is the company’s actual contract revenue divided by the maximum revenue calculated for the period. That measure fell from 94 percent to 92.6 percent.
Transocean said it struck more than $2.76 billion in asset value from its books in the third quarter, as the outlook for the offshore drilling market worsened amid lower oil prices and decreased demand. Its fleet utilization, which is the number of calendar days divided by the number of days its rigs were in use, had fallen from 83 percent to 75 percent.
Still, Newman said, in the offshore market’s cyclical downturns, the most effective solution for lower oil prices “is lower oil prices.” Eventually, the market will balance out as rigs retreat and demand picks up again, he said.
Transocean shares increased 39 cents in pre-market trading on Monday to $29.71 on the New York Stock Exchange.
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