CIMB Research sees 40% utilisation rate for Sapura Energy’s tender rigs

KUALA LUMPUR: CIMB Equities Research forecasts Sapura Drilling to deliver an average utilisation rate of 40% for its tender rig fleet in FY19F, rising to 50% for FY20-22F. 

In its research note, it said that on the other hand, it assumed that average charter contract rates will fall from US$113,147 a day in FY18F to c.US$92,000 to US$93,000 a day in FY21-22F, due to expiry of ongoing contracts. 

“As a result, we do not expect Sapura Drilling’s earnings before interest and tax (EBIT) to bottom until FY22-23F, before a stronger recovery from FY24F,” it said.

To recap, CIMB Research said demand for tender drilling rigs (TDRs) has declined since the oil price downturn started in mid-2014. 

At the peak in end-2013, there were 25 TDRs in employment globally (76% utilisation). Demand bottomed in end-2016, where there were only 12 units employed (41% utilisation). As at end-2017, there were 13 units employed. 

Based on contracts secured to-date, demand should rise to 14 units at end-2018F, representing a utilisation rate of 48.3%. 

Utilisation may recover further as demand for jack-up drilling rigs is expected to improve. 

As at end-2017, there were 27 TDRs in the global fleet, with an outstanding newbuilding orderbook of eight units. It appears that all eight may eventually come onto the market since all of them have either been completed or will be completed by the yard. 

However, the timing of the commercial deployment is still subject to some flexibility, as it would depend on whether shipyards can find buyers for the four rigs they have been saddled with by owners who cancelled or abandoned their orders. 

Based on assumptions of full delivery, two TDRs will be delivered in 2018F, two will be delivered in 2019F, two will be delivered in 2020F, and the final two will be delivered in 2022F. 

However, if the shipyards fail to find buyers for their TDRs, the delivery profile will be reduced to one each in 2018F and 2019F, and two deliveries in 2022F. 

This slower pace of TDR deliveries will certainly help the TDR market achieve stability in utilisation rates, and potentially, charter rates.  

“We believe there are two TDRs in the global fleet of 27 units that are potential candidates for scrapping, as they are above or close to 30 years old. 

“Over the past year, three TDRs were scrapped, including Sapura Drilling’s own SKD Teknik Berkat (35 years old at the time of scrapping). If two additional aged rigs are scrapped, and if the delivery of the shipyards’ four abandoned TDRs is deferred for several years, the global TDR fleet may not see any net fleet growth for the rest of this decade. 

“Better jack-up (JU) utilisation rates may benefit the TDR market.  JU utilisation rates have recovered from a low of 63% in February 2017 to 67% in February 2018, although the charter rates have not budged from their lows given the still large oversupply. 

“Clarksons is forecasting utilisation rates to rise from 66% at end-2017, to 71% at end-2018F and 74% at end-2019F. This is on the back of expected higher levels of offshore oil and gas production. If JU utilisation rates tighten sufficiently, the effects of the tighter JU market may spill over into demand for TDRs,” said CIMB Research.