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$DO said that it expects 2016 rig operating costs to decline and 1Q16 contract drilling expense to be $205-225MM. Full-year 2016 depreciation expense is estimated to be $420-440MM, down vs. 2Q15, mainly due to the sale of a number of rigs in 2015 and the impairment charges taken in 1Q15 & 4Q15. 1Q16 depreciation cost is expected to be $100-110MM.
$DO said it expects a market recovery by 2019-end, driven by improved utilization as well as return of pricing power to the company. It added that more rigs will be scrapped as time progresses, when the marginal cost of bringing a rig back to the market becomes so high that operators might hesitate to reinvest in such assets.
Offshore drilling company $DO swung to a profit in 2Q17, cutting down prior-year quarter's huge losses, partly helped by two new contracts. Net income was $16MM, or $0.12 per share, compared to a loss of $589.9MM, or $4.30 per share a year ago. Excluding one-off items, $DO earned $62.3MM, or $0.45 per share.
Deepwater drilling contractor $DO posted lower revenue and income in 1Q17. Net income was $23.85MM, or 17 cents per share, compared to $87.4MM, or 64 cents per share in the year-ago quarter. Revenue fell 20% to $374.2MM. As of March 31, 2017, $DO's total contracted backlog was $3.2Bil, which represents 23 rig years of work.
$DO revised its 4Q16 earnings as it discovered that its liability for uncertain tax positions in certain foreign jurisdictions did not appropriately reflect changes in FX rates. Net income for 4Q16 increased by about $43MM or $0.32 per share. Net loss for full year 2016 declined by about $43MM or $0.31 per share.
$DO said that on the Mexico presence, it makes a good sense for the company to maintain a presence there. The deepwater options are well subscribed until the end of 2016 for the company. So, despite the challenges, the company feels Mexico deepwater is a good place to be in.
$DO said it is not expecting material changes to its base cost trends in the coming quarter, with the exception of cost movements related to ramping up or winding down contracts. Depreciation and interest expense both were below guidance for 4Q16, resulting from the Ocean GreatWhite being placed into service later in 4Q16 than originally expected.
$DO stated the offshore drilling market continues to be oversupplied and the deepwater fleet utilization continues to decline. $DO's contract drilling revenue rose about 3%, driven by the Nov. startup of the Ocean Valiant contract with Maersk and improved operating efficiency sequentially. However, contract drilling cost declined 7% sequentially.
$DO swung to a 4Q16 profit from a loss last year, driven in part by continuing cost controls and improving rig efficiencies as well as benefit from contract dispute settlement with a North Sea client. Net income was $73.06MM or $0.53 per share compared to a loss of $245.38MM or $1.79 per share last year. Revenue fell to $391.87MM from $555.56MM.
$DO will incur some additional costs in 4Q16 related to the Ocean GreatWhite rig. Once this rig is presented for acceptance testing, the company will start incurring depreciation on the rig. $DO has been capitalizing some of the associated interest costs which will stop once the rig is presented and also costs such as labor will start to come in.
$DO is focused on some particular rigs moving into 2017. These include the Ocean Guardian rig in the UK market and the Ocean Monarch. Rigs that come off contract in 2017 are facing headwinds regarding recontracting. $DO is focused on the right rigs in the right markets to make sure utilization and backlog stays healthy.
$DO expects to incur maintenance capital cost of approx. $125MM for full-year 2016. Newbuild Capex for 2016 is expected to be approx. $500MM, including the final payment related to the delivery of the Ocean GreatWhite Semisub. In total, Capex for full-year 2016 is expected to be $625MM.
For 4Q16, $DO expects contract drilling costs to be $190-195MM. $DO expects depreciation expense to be approx. $385MM for full-year 2016 with 4Q16 coming in around $90MM. G&A costs are expected to average around $15-18MM in 4Q16. Interest expense is expected to be $26MM in 4Q16. 4Q16 effective tax rate is expected to be about 33%.