Survivors in the drillship sector will probably be those connected to major shipowners, Arctic Securities analyst Sebastian Grindheim predicts.
He said in a Monday morning note that bankruptcies were unavoidable for most drillship owners as oil companies make deep budget cuts due to the oil price collapse, including players in the exploration and production space with weighted average cuts of 25%.
But Maersk Drilling and Odfjell Drilling — with connections to eponymous shipping groups — and John Fredriksen-backed Northern Ocean would be "likely survivors", he said, due to "lower leverage and our expectations that the North Sea market will be relatively less impacted due to less oversupply".
"Although one could argue that their debt level will be a competitive disadvantage versus peers that will re-emerge with substantially lighter balance sheets, we believe other companies with significant harsh environment exposure (Seadrill and Transocean) will not be able to reduce their debt level to the same extent as the others due to a meaningful portion of secured debt."
Maersk Drilling owns four ultra-deepwater drillships, four semi-submersibles and 14 jack-ups; Odfjell Drilling owns six semi-submersibles; and Northern Ocean two rigs.
Grindheim's note said rig visibility was already low before Saudi Arabia began increasing production, cratering the oil price. With oil prices so low, rig demand will dry up, he said, and dayrates will fall to around break-even levels.
Grindheim identified other companies backed by major shipowners, such as Tor Olav Troim's Borr Drilling and Idan Ofer's Pacific Drilling, that would probably look to reorganise, alongside Noble, Valaris and Seadrill, where Fredriksen once served as chairman.
The companies did not immediately return calls or emails requesting comment.
Houston's Diamond Offshore and 14 subsidiaries filed for Chapter 11 bankruptcy protection in Houston federal court on Sunday, in an effort to rework its capital structure.
In a statement, Diamond said it was in negotiations with "key stakeholders".
