There is almost nowhere to find shelter in oil and gas during the current downturn, but no subsector faces more challenging fundamentals than offshore drilling. The years in the mid-2000s, when offshore oil and gas was the key growth area for the oil industry, led to the belief that the international oil companies and Petrobras would have an ever-growing need of new deep-water rigs, given the billions of barrels of presalt oil that they discovered in Brazil. This has turned out to be a disastrous miscalculation, given the emergence of U.S. shale, and more recently, rising OPEC onshore production and financial turmoil in Brazil.
For offshore drillers, this means that the market for offshore rigs is now in one of the most challenging periods of its entire existence. Given the quantity of new rigs that have been built or will enter the market in 2015-16, there are simply far too many offshore rigs on the market given the very limited appetite for capital-intensive projects in the industry. While rising oil prices and falling offshore costs can help going forward, these alone are not enough. The offshore rig fleet also needs a major rationalization--60-100 rigs need to be permanently taken off the market for a full rebalancing to occur. The one silver lining is rig contracts were signed prior to crude prices collapsing, which will provide companies with a lifeline that should allow most of the major firms to weather the storm. But as more and more rig contracts roll off, the day rates of $500,000-plus per day appear to be off the table for the rest of the decade, if not longer.
Given the huge secular headwinds facing offshore drilling from overcapacity and the emergence of U.S. tight oil, we currently believe the risk/reward proposition is far less attractive than elsewhere in energy. While this gives drillers plenty of leverage should crude prices recover faster than expected, there's a great chance these stocks are actually value traps even after their recent falls.
Valuation
We are lowering our Seadrill fair value to NOK 21 per share from NOK 37 to reflect the rapidly deteriorating conditions in oil markets and the knock-on impact that will have for offshore drilling in 2016-17. Market fundamentals continue to deteriorate for offshore drillers, and in our view, valuations will depend largely on how aggressively each driller scraps or stacks uncompetitive rigs, which will be required to balance this massively oversupplied rig market. Seadrill possesses a particularly bloated fleet and stretched balance sheet, and clearly is going to have to make hard choices in the next one to two years.
Our day-rate forecast considers our outlook for offshore activity and rig fleet levels in addition to our long-term oil price forecast of $70/bbl Brent to derive a base day rate for floating rigs and jackups. We adjust our assumptions to account for various rig specifications, including water depth, drilling depth, station keeping, and vessel location.
In our base case, we anticipate that revenue will decline by 8% in 2015 and 24% in 2016 as the benefit of contracted newbuild ultra-deep-water rigs entering service is outweighed by lower day rates and underutilization. We anticipate earnings won't trough until at least 2017.
Utdrag av oppdatert analyse av Seadrill publisert 20.1.2016 på Morningstar Select.
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