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Why Seadrill’s Tendering Activity Matters to Its Medium-Term Outlook

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Seadrill’s outlook

In Seadrill’s (SDRL) 1Q17 conference call, the company gave its view of the industry’s (IYE) (OIH) future. Studying these developments can help us gauge the future of Seadrill, of its subsidiary Seadrill Partners (SDLP), and peers including Transocean (RIG), Diamond Offshore Drilling (DO), Atwood Oceanics (ATW), Rowan Companies (RDC), and Noble (NE).

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CEO statement

In Seadrill’s 1Q17 earnings call, CEO (chief executive officer) Per Wullf stated that “tendering activity continues to increase, especially in the North Sea, Southeast Asia, and Middle East segments. While competition remains fierce for available work, we are well positioned with our scale, young modern fleet, and highly skilled workforce.”

Offshore drilling

Until an increased consistency can be seen in an upward trend of oil prices, however, many oil companies will likely remain focused on conserving cash and will be reluctant to invest in new capital projects.

For a healthy market, the offshore drilling industry will require the retirement of older rigs as well. Tendering activity has thus been increasing—especially in the North Sea Floater market, in Southeast Asia, and in the Middle East jack-up segment. Market behavior seems to indicate that the industry has reached the bottom of a cycle, and oil companies are contracting for increased duration, with multiple fixed period options.

According to Seadrill, the offshore drilling industry remains a challenging one, and it expects this to continue in the short-to-medium term. However, the company still believes in the long-term fundamentals of the industry.

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