• 4 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 6 minutes UAE says four vessels subjected to 'sabotage' near Fujairah port
  • 9 minutes Why is Strait of Hormuz the World's Most Important Oil Artery
  • 13 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 7 hours California's Oil Industry Collapses Despite Shale Boom
  • 6 hours Greenpeace Blocks BP HQ
  • 12 hours Knock-Knock: Aircraft Carrier Seen As Barometer Of Tensions With Iran
  • 16 hours The Consequences: Full-Blown Trade War Will Push World Towards Recession
  • 3 hours Shale to be profitable in 2019!!!
  • 36 mins Balancing Act---Sanctions, Venezuela, Trade War and Demand
  • 13 hours Australian Voters Reject 'Climate Change' Politicians
  • 16 hours IMO2020 To scrub or not to scrub
  • 20 hours Global Warming Making The Rich Richer
  • 11 hours UK Needs New Wind Turbines
  • 10 hours Will Canada drop Liberals, vote in Conservatives?
  • 2 hours DUG Rockies: Plenty Of Promise, Despite The Politics
  • 17 hours Did Saudi Arabia pull a "Jussie Smollett" and fake an attack on themselves to justify indiscriminate bombing on Yemen city population ?
  • 20 hours California Threatens Ban on ICE Cars
  • 22 hours Shell ‘to have commercial wind farms’ by early 2020s
Alt Text

Why Oil Is Still Underpriced

Oil prices are pulled in…

Alt Text

The Shale Boom Is About To Go Bust

The shale boom has transformed…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Trending Discussions

Why The Bust For Offshore Drillers Might Last Another 2 Years

Statoil cancelled a contract for a drillship with Seadrill, which it had intended to use for drilling operations in the Atlantic, near Newfoundland. The cancellation is the second drillship contract to be terminated for Seadrill, coming shortly after Exxon canceled a contract for its drillship, West Capella, that had been dispatched off the Nigerian coast.

West Hercules, the Newfoundland drillship, was bringing in $445,000 per day for Seadrill, and it was supposed to continue to do so until January next year. Statoil, however, has decided to save some money and pay Seadrill some $61 million as compensation for canceling the contract. Revenues until January 2017 would have exceeded $90 million.

Things are not looking good for offshore drillers at the moment, and Seadrill is not the only one that’s had contracts canceled. Drillers have accumulated huge piles of debt and have been left with few ways of tackling it in an industry where everybody is thinking about cutting costs. What makes the downturn worse for these drillers is that they don’t have an alternative source of revenue, while major integrated E&Ps can rely on their downstream operations to support their balance sheet until prices recover and upstream operations rebound. Related: Clinton Chasing Votes With Fracking U-Turn

There’s gloom across the drilling world. Demand for drilling services is extremely weak. Although most industry leaders are still in the black, there are not enough new orders coming in to sustain these performances. Credit rating agencies are revising their stance on drillers downward, despite positive quarterly results, and some are forced to suspend dividends as a way to realize more cost savings. Bad news all around.

There is some good news, however. At least in the medium term, there will be a pick-up in demand for drilling services as existing fields are depleted and E&Ps are forced to look for new ones. Once prices start climbing back up, and demand begins to outstrip supply, drilling should return. Related: The Consequences Of $50 Oil

Estimates as to when this will happen vary from two to five years. With new oil discoveries at a 60-year low, and severe cut backs in spending assuring that exploration will remain moribund for the next few years, chances are that demand will inch up higher than supply sooner rather than later.

When this happens, the surviving drillers will get a new chance to thrive. Meanwhile, in a bid to guarantee their survival, some are betting on consolidation: Technip and FMC recently announced their planned $13-billion all-stock tie-up that should result in annual cost savings of up to $400 million. More deals like this could follow in offshore drilling as mergers and acquisitions have remained the only option for some embattled drillers.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment
  • aaron on May 27 2016 said:
    The first sentence isn't true, which you can see if you click on the link in the second sentence.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News