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Seadrill’s Outlook on Offshore Drilling

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Updated

Conference call insights

In this article, we’ll examine Seadrill’s (SDRL) 4Q16 conference call insights on current developments in the offshore drilling (OIH) space. In the call, the company expanded on its view of the industry’s future.

Studying these developments can help us gauge the future of Seadrill, its parent company, Seadrill Limited (SDRL), and peers Diamond Offshore Drilling (DO), Atwood Oceanics (ATW), Rowan Companies (RDC), Transocean (RIG), and Noble (NE).

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CEO statement

With Seadrill’s 4Q16 earnings release, CEO Per Wullf stated that “we continue to see an improvement in the level of bidding activity following the increase and stabilization of oil prices. Improving dayrates will not be a feature of 2017, however, based on the expected level of scrapping and cold stacking activity we believe there is room for some optimism.”

Offshore industry

Seadrill discussed several key matters in the offshore drilling industry.

  • According to Seadrill, the outlook for the offshore drilling industry, at least in the short-to-medium term, remains extremely challenging.
  • Tendering activity, especially in the North Sea, has increased.
  • Capital spending by oil exploration and production companies will be down again in 2017. However, less reduction is expected than previously predicted. Capital expenditure is expected to increase between 2018 and 2020.
  • Break-even costs for offshore drilling projects have fallen. Oil prices, which have remained above $50 per barrel after the OPEC production cut agreement, are close to the reduced break-even prices.
  • Seadrill expects the utilization rate for floaters to worsen before they get better.
  • Seadrill expects jack-up utilization to be challenged for the foreseeable future. A pricing recovery is not expected.
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