Stena Drilling has for years represented a solid unit in Stena AB's portfolio of shipping companies, but this status could now change in light of the steep slide in the oil price and the crisis in the offshore markets, says Stena Shipping, Drilling & Ferries CEO Carl-Johan Hagman in an interview with ShippingWatch.
"There is no doubt that we all have some tough years ahead of us in the current drilling market. Investments in offshore are generally declining, and the thing about supply is that there has been and still are far too many rigs entering the market. This has hurt a lot, resulting in a strong decline in rates," he says, adding:
"On the other hand, we're also seeing a considerable number of rigs being pulled from the market. That's good for us, because we're not forced to do that."
A Nordea analysis recently showed that several hundred rigs look set to leave the market ahead of 2017, and that numerous major players in the drilling market, including Transocean, will come out on the other side with considerable injuries.
Stena Drilling's fleet consists of four drilling rigs and four drilling vessels, and contract coverage for the rigs brings almost full employment until 2017.
"We feel that we are as prepared as we can be for this softer market, but we are also facing risks. We're noting a constant pressure in terms of contracts," says Carl-Johan Hagman, adding:
"We expect to avoid idling. We'll take delivery of one midwater rig next year, and our top priority right now is to secure employment for this unit.
According to the Nordea analysis, the worst part of the offshore crisis will have worn off by the second half of 2017, though things are still too uncertain to make any definitive conclusions. Carl-Johan Hagman stresses that Stena Drilling, like most of the market, did not expect the massive slide in the oil price, and as such he also declines to guess at when the oil price will stabilize at a higher level, or when the rig market might turn around.
The growth driver
Stena Drilling's 2014 revenue came to USD 986.6 million, and the company's earnings increased in the first quarter 2015 compared to the same period 2014, due to the dollar rate.
Stena Drilling publishes its results alongside the other companies in Stena AB, which had a combined revenue of USD 917 million in the first quarter 2015, while the profit in the same period grew to USD 282.1 million, mainly attributed to the sale of ferry operations on Helsingor-Helsingborg which was co-owned with Scandlines.
In addition to Stena Drilling, the Shipping, Drilling & Ferries division, headed by Carl-Johan Hagman, also covers Stena Line, Stena RoRo, Technical Manager Northern Marine Group and the two tanker carriers Stena Bulk and Concordia Maritime, of which the latter represents the only listed part of the major Swedish privately held shipping group.
"When I look at drilling in light of the portfolio as a whole, there is a continuous pressure on the division, just as there is a continuous commercial pressure on all our business areas. The dynamics at drilling are not as different from the dynamics at any other shipping divisions, so we just have to be pleased that the market has been this strong for this long and that our other segments are doing well. Even though it hurts now, we're trying to say: Here we go again, and try to deal best possible with this situation," Carl-Johan Hagman tells ShippingWatch.