Seadrill expands drillships amid low current crude oil prices

John Fredriksen, owner of Seadrill Limited, the third largest drillship company in the world, projects higher incomes for the company in the next three years. The company is also implementing strategies that will help achieve these income targets. For 2012 alone, Seadrill is expected to achieve bottom-line revenue of $1.54 billion, a growth of 8.2 percent over last year’s figures.

Despite declining current crude oil prices, which could trigger a slowdown in drilling operations, Seadrill went on to implement plans of expanding drillships from four to ten units within a time frame of two years. Each vessel is currently drilling up to seven miles beneath the ocean’s surface, bringing in about $625,000 per day.

Seadrill has strategically ordered sea vessels long before it gets clients ready to lease the units. Speculative ordering has helped the company position itself ahead of competitors who are still behind the curve in expanding their fleets. Seadrill can easily add capacity as needed and take advantage of rising freight rates. Fredriksen believes that demand for fleets will soar as more oil firms attempt to cover unexplored areas of the globe.

Barclays Plc Analyst James West commented that drillships will be in high demand as oil companies explore further into deep waters. Seadrill has the upper hand with regard to supplying this demand. Aside from declining oil prices, the growing concern for the environment will also impact oil exploration activities, and eventually weaken demand for drill ships.

On the other hand, the International Energy Agency (EIA) disclosed that, despite a slow-moving economy, the growth of oil demand has remained steady. IEA even raised its world oil consumption estimates by 80,000 to 90,000 bpd.

Despite this year’s decline in crude oil price per barrel, prices remained 26 percent more than the past 10-year averages. Furthermore, oil deposits on land are slowly being depleted, forcing explorers to turn to drilling at sea.

Data from Bloomberg reports that spending for natural gas and oil exploration increased 400 percent since 2002.

Samsung Heavy Industries Company, one of the biggest drillship builders in the world, has entered into contracts to build 21 additional drillships at an aggregate price of more than $11 billion. Currently, the company is also completing 6 drillships for Seadrill.

To date, there are around 87 drillships being operated around the world according to a Colorado research team. Oil company consultant Jarand Rystad predicts that, at the close of this decade, the world’s drillship requirement will double.

He added that “Existing fields are declining fast. Offshore oilfields need to deliver to avoid a too-high current crude oil price, and its resulting further slowdown of the global economy.”