Norway rig tender reveals 'desperate' drillers in price rout

OSLO, Norway (Bloomberg) -- An unusually high number of rigs are competing for a Det Norske Oljeselskap ASA drilling contract on the Alvheim oil field in the North Sea, an illustration of how companies are desperate for business as producers slash spending amid a crude-price slump.

“I’ve tendered for rigs on the Norwegian continental shelf many times, and I’ve never seen a tender with 13 rigs competing for the job,” Det Norske CEO Karl Johnny Hersvik said in an interview Wednesday. “That’s a pretty extraordinary figure.”

Thanks to the fierce competition among drillers starved of contracts, Det Norske expects to pay “extremely favorable” rental rates and get “very flexible” terms for the 300-day contract for a semi-submersible rig that it’s seeking, Hersvik said.

Offshores drillers such as Transocean Ltd., Seadrill Ltd. and Fred Olsen Energy ASA have been caught in a double whammy of falling demand for their services and a glut of new rigs coming into the market. In Norway, Statoil ASA, the dominant state- controlled oil company, has cut the equivalent of four years of drilling by terminating and suspending rig contracts over the past 18 months, adding to the oversupply.

Desperate Situation

“It’s a desperate situation for the rig companies and a very pleasant situation for the oil companies,” analyst Truls Olsen of Fearnley Securities AS said in a phone interview. “Typically, less than a handful of rigs have been involved in tenders like this” and the number of companies vying for Det Norske’s contract “must be a record for Norway,” he said.

The daily rental rate for Det Norske’s rig will be lower than a recent award to Odfjell Drilling Ltd., which will get about $300,000 a day to drill on Statoil’s Johan Sverdrup field for three years starting in March 2016, Nordea Markets analyst Janne Kvernland said by e-mail. That’s about half of what Odfjell’s Deepsea Atlantic rig is currently earning.

Next year will be “ugly” for the rig market, Seadrill CEO Per Wullf said last month. The Hamilton, Bermuda-based driller could be willing to accept day rates of as low as $160,000 on very short contracts if they allow the rig to stay active and bridge a gap in its work schedule, he said. The company won’t accept less than $350,000 to $400,000 a day for longer deals, Wullf said.

Det Norske expects to award the contract, which will also include options that are “much longer” than the initial period, “quite soon,” Hersvik said.