The Offshore Industry's 2Q: A Slow-Motion Decline
Our thoughts on the offshore industry's second-quarter results.
The offshore industry's second-quarter results saw gloomy forecasts for jackups and midwater rigs. Negative customer expectations surrounding commodity prices and difficult well economics mean lower demand for offshore drilling. Drillers are trying to tighten their markets by stacking rigs, but day rates are down 30%-40% for most jackups, and we expect to see falling day rates and more cold-stacking for many midwater rigs as soon as they come off contract. Still, the hefty backlogs for many of our companies give them ample time to strip out costs as long-term rig contracts slowly roll off.
However, there are still some positive data points for the offshore industry as it deals with a bleak near-term outlook. The short- and long-term opportunities for new rig contracts and equipment sales in Brazil remain tantalizing, and the massive rig needs of Brazil's Petrobras (PBR) is keeping ultra-deep-water rigs in high demand. There are also some signs that the jackup market may be stabilizing, a trend that runs counter to our current industry thesis. Finally, selected companies such as National Oilwell Varco (NOV) and Rowan Companies (RDC) are taking advantage of the downturn to pursue new growth avenues. After reviewing the industry's second-quarter results, we think there are several key takeaways.
Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.