Seadrill paints a bleak picture for the rig sector

Rig operator Seadrill today painted a bleak picture for the drilling sector, which it said is characterised by "too many rigs carrying too much debt".

The Bermuda-based firm said the severity of capital expenditure (capex) cuts by upstream firms will lead to a reduction in exploration programmes and delays in the sanctioning of development programmes, and as a consequence a fall in rates and utilisation for drill rigs. It said this will be felt in the onshore and offshore sectors alike.

Half of Seadrill's fleet was idle as of the end of March, and it said that a number of its rigs "are increasingly unlikely to return to the market and need to be scrapped." To this end it took an impairment charge of $1.2bn in the first quarter of this year.

The firm, which came out of Chapter 11 bankruptcy proceedings two years ago, said there are "substantial doubts" about its ability to continue as a going concern. A process to renegotiate the high level of cash outflow required to service Seadrill's debt with 43 lenders has stalled because of uncertainty arising from low oil prices and the Covid-19 pandemic, although it said its $1.2bn of cash in hand should provide a cushion to allow for a restructuring. It plans to delist from the New York Stock Exchange in the coming months, but will retain a listing in Oslo.

Seadrill made a $1.56bn loss in the first quarter, compared with a $295mn loss a year earlier.

By Ben Winkley