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An analysis released by Rystad Energy indicates the murky scenario that drilling companies will face in 2020 and possibly 2021. Rystad estimates that they will have up to 10% of their contract volumes canceled in 2020 and 2021, representing a combined loss of around US$ 3 billion in revenue.
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Prior to the crisis, that is, a few weeks ago, the total estimated value of drilling contracts was US$ 30 billion, US$ 20 billion for 2020 and the rest for 2021. So far, canceled contracts have already totaled about US$ 400 million.
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The expectation is that the numbers of contract cancellations will be even greater as oil companies continue cutting investment budgets and delaying projects.
According to Oddmund Føre, Offshore Market Services Director at Rystad Energy, “More than US$ 22 billion in contract value was swept away as a result of cancellations between 2014 and 2017. Now, at the beginning of a new slowdown, a market that was just starting to return to healthy levels of contracting activity and day rates has seen its hopes crushed.”
In its analysis, the consultancy predicts greater difficulty for drillers compared to the 2015 crisis. Such companies, as well as those providing offshore vessels, will not be able to pay their total outstanding debt for 2020 based on cash flow from operational activities (CFO), unless they make cuts to CAPEX. Otherwise, only the capital markets will relieve, moving towards refinancing.
The consultancy recalls that during the 2015 crisis, many companies canceled drill rig contracts and subsequently re-contracted the units at lower rates. Unlike what is seen now, which are extensions. Rystad estimates that the same will not happen again (drill rig rental rates have increased in recent months) and that the savings for them would be small if they canceled and re-contracted the unit.
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