Tough year for offshore: Atwood delays rig delivery

The Atwood Aurora, an independent leg cantilever jack up, can drill to depths of 30,000 ft. (Photo: Atwood Oceanics)
The Atwood Aurora, an independent leg cantilever jack up, can drill to depths of 30,000 ft. (Photo: Atwood Oceanics)

In another sign that 2017 is going to be a tough year for offshore services companies, driller Atwood Oceanics announced this week it has yet again cut a deal to delay delivery of — and payment for — two new ultra-deepwater drillships.

Atwood, based in Houston, said that Daewoo Shipbuilding & Marine Engineering won’t require Atwood to pay for all of the Atwood Admiral and the Atwood Archer until 2019 and 2020.

Atwood said it will pay $125 million to the South Korean shipbuilding firm for the Archer by December 15 and another $15 million on delivery; the company will pay $10 million for the Admiral at delivery. In exchange, Daewoo will extend the remaining $249 million in payments until the end of 2022. Daewoo will charge Atwood 5 percent interest upon delivery of the ships.

Atwood CEO Rob Saltiel called the move “an important step” toward balancing its budget. The company doesn’t yet have service contracts for either rig, meaning it would be paying for ships to sit. The two-year delay, Saltiel said, gives the company a chance to sell the new rigs’ services before they arrive.

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Atwood was banking that British company Premier Oil would contract to use the Admiral, according to energy researchers at Barclays. But Premier delayed its exploration program off the coast of Brazil.

It’s the fifth time Atwood and Daewoo agreed to adjust the Admiral and Archer construction contracts, analysts said.

Still, analysts generally praised the move on Wednesday. Raymond James called the move “an incremental positive.” Tudor, Pickering, Holt & Co. said it was a “favorable outcome.”

Atwood now owns 10 offshore drilling rigs. All five of its “jackups” — shallow water rigs with legs — are now idled, Barclays said, as is one of its floating rigs.

But the company will lose three more floating rig contacts over the next year, Barclays said, “in the midst of an offshore rig market whose projected timing for recovery is 12 to 24 months out.”

As of mid-November, Atwood had $760 million in cash and liquidity to service $400 million in new-build commitments and $1.2 billion in debt.

Atwood’s ability to meet its debt obligations in the coming years, Barclays said, hinges on the driller landing new contracts, without which Barclays expects negative cash flow each year through 2020.