So, let’s face the truth about the last half of a year. Covid simply has turned the whole world upside down. Many countries and industries have faced a lot of financial, economical, and healthy problems. The drilling industry didn’t make an exception. According to Reuters companies that operate offshore drilling rigs for major oil, producers are facing a second wave of bankruptcies in four years amid a historic drop in energy prices. But that is not all, so let’s take a look at how Covid actually has impacted the drilling industry.
The collapse of the offshore industry will have a wide impact. Drilling operators and their suppliers are the main drivers of innovation, supporting shale and offshore companies, and last year directly generated about 25% of world oil production.
Diamond Offshore Drilling Inc, Noble Corp., Seadrill Ltd, and Valaris Plc, which are part of the seven largest offshore drilling operators, have also turned to their creditors for help or started negotiations to change their debt structure. These endeavors are quite risky because they can lead to bankruptcy if failed.
Pacific Drilling said in June that changes to its debt terms were likely to be needed. For this reason, its managing team is also looking for opportunities for alternative financing if creditors do not agree with the changed conditions. In a similar situation is Shell Drilling, which ranks ninth in terms of revenue. The company is negotiating with its creditors for credit agreements that will take effect next year.
There is no denying that before Covid the industry had its problems due to the rather high costs and cheaper US shale oil. The discovery of new deposits off the coast of South America and Africa has provoked interest from leading oil companies to drill in deep waters. This led to the development of offshore activities two years ago.
The drilling giants, and not only they, started the year optimistically, predicting that oil prices would reach $ 60 a barrel. As the pandemic deepened in April, however, demand fell sharply, leading to oil prices of $ 20 a barrel.
Hopes for a recovery in the coming years are not high. Many oil producers are abandoning projects that cost $ 60 a barrel to make a profit. Companies expect years to pass before this price is reached. Chevron, Exxon Mobil, Petronas, and Royal Dutch Shell (RDSa.L) completed some of their drilling contracts earlier this year to save money.
Many drilling operators have nothing to use as collateral for credit companies. A significant percentage of these companies scrap or withdraw vessels because they have come to the conclusion that it may be years before they need the equipment again. Valaris planned to abandon 11 platforms and “freeze” 9 others.
As a result of previous problems and a new wave of economic crisis, leading manufacturers have reduced their costs by between 30 and 50% to save money. It is predicted by experts in the field that the companies from the offshore industry will survive if they are able to refinance their loans and survive for the next two years.