The offshore drilling (OIH) industry works on contracts that range from a few months to years. These contracts specify the time frame and day rate awarded to a rig.
A company’s backlog is calculated as the predetermined contracted day rate multiplied by the remaining contract duration. And a company’s backlog often indicates where future revenues might be.
Change in backlog
It’s important to look at how a company’s backlog has changed over time. A steeply declining backlog suggests that a company is eating up its backlog faster than it can replenish with new contracts—which isn’t a healthy sign. But which company’s backlog has fallen the most, and which has fallen the least?
The offshore drilling industry has been facing this downturn for more than a year now. The past year was characterized by low day rates and low or no new drilling contracts for the industry. Companies are alive mostly due to their earlier contracts, but this backlog is steeply falling.
Compared to one year ago, Seadrill’s (SDRL), Atwood Oceanics’ (ATW), and Ocean Rig’s backlogs have fallen the most, by 56%, 52%, and 49%, respectively. We can assume that these companies are relying on their earlier contracts, which is eating up backlogs faster than they can replenish them.
Transocean’s and Diamond Offshore’s (DO) backlog from last year has fallen 26% each—the least among peers.
Although a few companies managed to secure one or two contracts in the second quarter, at the end of second quarter, none of these companies reported a higher backlog compared to the previous quarter. Atwood Oceanics’ backlog fell 20% from the previous quarter. Similarly, Noble’s (NE) backlog fell 18%.
Transocean (RIG), which secured two new contracts in the second quarter—one in India and another in the North Sea—saw a mere 6% fall in its backlog, which was lowest among peers. Although Ocean Rig has experienced one of the steepest falls in backlogs from last year, its backlog fell only 8% in 2Q16 from the previous quarter.