Seadrill pessimistic about rig sector prospects in 2021

Rig operator Seadrill expects a bleak year for the sector, as the Covid-19 pandemic has dampened offshore activity and market oversupply has continued to lower rig rates and utilisation.

The Bermuda-based firm identified the pandemic's "ongoing adverse economic impact" as the cause of low offshore activity levels. As a result, it is "preparing for a prolonged period of low demand", which is set to continue into 2021.

The firm's expectations of a partial market recovery remain pegged at midway through next year, although it said that significant uncertainty clouds the timing of any potential rebound.

The effect of the pandemic and volatility in the oil market may make it more difficult for Seadrill to realise its order backlog, which was around $1.9bn at the close of the fourth quarter compared with $2.2bn in the third quarter. It booked several impairments against rigs last year, to reflect market conditions and the likelihood that several cold-stacked rigs have reached the end of their working lives. Seadrill has 34 rigs, of which 19 were idle as of 31 December.

Rig supply still exceeds demand, which will keep rates and utilisation levels low this year, Seadrill said. But it indicated that scrapping older assets — alongside elevated demand forecast for late this year — will contribute to a rebalancing of fundamentals.

Seadrill has committed to selling or scrapping any "legacy units that are not expected to deliver sufficient returns on investment". It took this decision as part of cost-cutting measures, but also because the likelihood of scrapping is increasing given the oversupply of rigs.

The firm filed for bankruptcy protection last month because of the challenging market conditions.

Seadrill made a loss of $2.91bn in the second half of 2020 and an overall annual loss of $4.66bn, deeper than the $1.22bn loss it made in 2019.

By Saleem Rizvi