Contracts cancelled, debts mounting

Offshore oil drillers face another shakeout

DENVER/OSLO — The companies that operate offshore drilling rigs for major oil producers face a second wave of bankruptcies in four years amid a historic drop in energy prices that likely will leave surviving drillers more closely tied to big oil firms.

A collapse of the offshore industry will have broad impact. Drillers and their suppliers have driven innovation that has helped shale and offshore wind companies by pioneering remote monitoring and control, and last year directly generated about 25% of global oil production.

The offshore services business is the worst performing of the oilfield services sector, with shares of the 10 largest publicly traded down 77 per cent since the start of the year.

Four of the seven largest offshore drillers — Diamond Offshore Drilling Inc., Noble Corp., Seadrill Ltd. and Valaris Plc. — have sought protection from creditors or begun debt restructuring talks that could lead to bankruptcy.

Two others are reaching out to their creditors. Pacific Drilling last month said it may need to modify terms of its debt, and was seeking alternative funding in the event creditors would not accept new terms. Shelf Drilling, the ninth largest by revenue, is seeking talks with creditors over loan covenants that take effect next year, executives said. The latest offshore industry’s turmoil “is going to change things in many ways,” Odfjell Drilling Chief Executive Simen Lieungh said in an interview. “Existing players and the existing structures will probably not be there as today,” he said referring to companies scrapping rigs.