Transocean says rig glut will drag out offshore-drilling recovery

Offshore drillers struggling with plunging demand will start getting more work before they get more money, according to Transocean Ltd., the biggest rig company by market value.

Rig-use rates, which have fallen to about 70 percent in the past year from more than 90 percent for the most advanced semi- submersible units, will probably begin to pick up within the next 12 to 24 months, Chief Financial Officer Mark Mey said in an interview. But the market will remain “challenging” and drillers will have to wait longer to see substantially higher charter fees, which have fallen toward cash break-even levels, he said.

“If we do see a recovery in 2017, it comes against the backdrop of a rig oversupply,” Mey said in Oslo, where he was attending a conference. “The day-rate improvement, as it has in every down-cycle in the past, starts out slow. And then as utilization picks up and you start narrowing the balance between supply and demand, you start seeing an escalation.”

Offshore drillers including Transocean an billionaire John Fredriksen’s Seadrill Ltd. have faced a double whammy of collapsing demand amid crashing oil prices and a wave of new rigs, widening oversupply. Contract awards are at their lowest level since the 1980s, Seadrill said last month, and drillers are now accepting “survival rates” well below $200,000 for floating rigs. That compares with fees as high as $650,000 at the peak of a boom in 2013.

Transocean has led efforts to reduce surplus capacity by scrapping 24 floating rigs, or half the total number taken out of service, Mey said. The company has 10 to 15 more that could be scrapped, he said.

There are likely to be mergers and acquisitions in the industry in the next 12 months, according to the CFO, who declined to comment on what role Transocean could play in any consolidation. The company sees “no urgency” to buy rigs itself, he said.