Maersk Drilling's idle rigs impact earnings, but uptime, performance remain high

COPENHAGEN -- Maersk Drilling reported a profit of $48 million in the company's interim report for first quarter 2017, down from $222 million last year, generating a ROIC of 3.0%, compared to 11.2% a year ago. The result is impacted by a significant number of rigs currently idle. However, higher operational uptime, further cost savings and lower depreciation due to the impairments in fourth quarter 2016 positively impacted the result.

“Our first quarter result reflects that a significant number of our rigs are currently idle and without a contract. Existing and more lucrative contracts are coming to an end, while new contracts are being signed at significantly lower day rates. However, a stellar operational uptime of 99% and the fact that Maersk Drilling managed to reduce cost levels further in first quarter positively impacted the result,” says Jørn Madsen, CEO of Maersk Drilling and continues: 

“Further, we are actively engaged in dialogues with a select few of the major international oil companies, exploring new business models with a larger degree of collaboration, e.g. better well planning and commercial alignment between us and the customers. A closer collaboration will enable us to create joint value and remove inefficiencies from the value chain.”

Maersk Drilling signed two new contracts in the first quarter of 2017. The jackup Maersk Resolute received a contract that covers the drilling of two wells offshore the Netherlands with an expected duration of 95 days, commencing in June 2017. Furthermore, Mærsk Gallant was awarded a contract for the drilling of one well in the UK sector of the North Sea. The duration of the contract is approximately 140 days and will commence in Q3 2017. The combined value of the two contracts amounts to $16 million.

“Despite an increase in tendering activity recently, our industry is still extremely challenged, with a massive oversupply of rigs. The day rates currently being offered are typically close to or below operating cost. Furthermore, the contracts are short in length, leading to idle periods between contracts and higher operating costs for mobilisation, start-up and ramp-down, which means we have to be extra vigilant about our cost level,” Jørn Madsen ends.

Maersk Drilling continues to identify and drive cost savings to optimise profitability and cash flows. Maersk Drilling reduced costs further by 5% compared to first quarter 2016, excluding exchange rate effects and savings from stacked rigs.

At the end of first quarter 2017, Maersk Drillings’ forward contract coverage was 57% for 2017, 46% for 2018 and 25% for 2019, making the backlog one of the strongest in the industry. The total revenue backlog by the end of first quarter amounted to $3.4 billion, compared to $4.7 billion a year ago.