Rig company Seadrill, once the crown jewel in the business empire of shipping tycoon John Fredriksen, said the final quarter of 2015 was the year’s strongest in operational terms, but warned that 2016 would be tough and said it was working to strengthen its finances.
Net income rose 82 percent to $285 million in the fourth quarter, beating the $238 million average estimate in a Bloomberg survey.
“During the fourth quarter we experienced our best operational quarter of the year, while continuing to reduce our cost base,” Chief Executive Officer Per Wullf said in a statement. “In the face of the severe downturn in our industry our priorities for 2016 are to conserve cash and address our financing needs.”
In addition to a falling market, Seadrill is struggling with a debt burden that by far exceeds that of its competitors. Total debt at the end of 2015 was $10.7 billion, according to the quarterly report.
The company said it will present a refinancing plan in the first half of this year to address its $10 billion debt, it said on Thursday.
At the height of the oil price boom the company was the world’s largest offshore driller by market capitalisation, but it is now struggling as oil companies implement drastic cost cuts to counter the 70 percent decline in crude prices since mid-2014.
“We continue to believe that the majority of rigs with contracts expiring in 2016 will be unable to find suitable follow-on work, many are likely to be idle for a protracted period and consequently cold stacking and scrapping activity will accelerate,” Seadrill stated in an overview of the market.
Seadrill has secured a two-year drilling contract offshore Angola for the semisubmersible West Eclipse, due to start in 2Q 2016.
Currently the contractor’s backlog totals $5.1 billion, comprising $3.9 billion for its drilling floater fleet and $1.2 billion for its jackup fleet. The average contract duration is 18 months for floaters and 13 months for jackups.
Seadrill has 14 rigs under construction at Asian yards, potentially adding to the company’s debt burden when they are completed in the coming years.
Out of those 14 rigs, eight are under construction at Dalian shipyards in China, two at DSME in South Korea, two at Samsung, also in South Korea, one at COSCO in China, and one at Jurong in Singapore.
Seadrill offers top of the range, hi-tech oil rigs designed to drill in the toughest conditions, such as the depths of the Arctic Ocean. Since these are the most expensive projects, they are typically the first to be scrapped or put on hold, so Seadrill’s earnings have suffered particularly badly.