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Rowan Companies’ Take on the Offshore Drilling Industry

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Market outlook

In its 4Q16 conference call, Rowan Companies (RDC) shared its outlook for the offshore drilling market. The company’s view of the industry could also shed some light on the outlook for its offshore peers (OIH) Seadrill (SDRL), Diamond Offshore (DO), ENSCO (ESV), Noble (NE), Atwood Oceanics (ATW), and Ocean Rig (ORIG).

Following are a few key points:

  • A year ago, Rowan forecast that the demand for jack-up rigs and deepwater markets would decline. The forecast proved to be true.
  • Operator budgets have fallen in 2017—the third year in a row.
  • History tells us that lower capital commitment activities such as land drilling and shallow water drilling recover faster compared to larger capital-intensive activities such as deepwater drilling.
  • Oil prices improved in the fourth quarter and OPEC’s production cut supported oil prices. As a result, tendering activity increased to late 2017, especially for jack-up rigs. The floating market seems to be pushing off in 2018.
  • 2017 will see a substantial increase in contract roll-offs. Most of the contracts were signed up in 2011 to 2014 when the industry experienced an up cycle.
  • Recently, jack-up rigs and floater scrapping increased. Rowan Companies thinks that the trend will continue in the next few years.
  • Rowan Companies thinks that more attrition of older rigs is necessary for the industry to recover.
  • According to Rowan Companies, it will take a few year to see a strong recovery in the offshore drilling space.

Rowan Companies is working hard to sail through the downturn. Read the whole series to learn about the company’s cost control initiatives and measures to strengthen its balance sheet. We’ll first start with Rowan Companies’ revenues in the next part.

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