Odfjell Drilling returned to profit in the second quarter to reverse a year-earlier loss despite seeing a drop in revenue on lower activity in its engineering and well services business in the North Sea market that is set to result in job losses.
The company was also hit by reduced dayrate income from semi-submersible Deepsea Atlantic due to survey work that left it laid up and revealed Statoil has decided not to exercise an optional two-year extension for the rig - currendly working on the Gullfaks field off Norway - with the existing contract due to expire in August 2015.
Odfjell has further warned of likely lay-offs in the UK after the termination of its drilling contract with Taqa Bratani on the Harding platform with effect from this month, having also cut 43 engineering staff at its Stjordal office in Norway.
The Oslo-listed rig contractor’s operating profit tumbled 34% year on year to $51 milliion in the latest quarter on 6% lower revenue of $272 million, which was also reduced by the earlier divestment of its mooring business unit.
However, Odfjell’s bottom line was buoyed by significantly lower income tax expenses of $4 million in the quarter, compared with last year when it was hit by a $63 million cost related to a court case.
As a result, the company was left with a quarterly net profit of $29 million versus a loss of $9 million a year ago, which represents an increase of $38 million.
The improved result was greeted positively by the market with Odfjell shares up marginally at Nkr31.50 in early trading on Friday to halt a slide of around 8% over the past week.
The company’s rig operating revenue remained flat at $184 million, with variable utilisation rates for its five-vessel fleet, although Odfjell secured in the quarter a lucrative six-well extension with for its semisub Deepsea Stavanger off Angola, with two optional two-well extensions.
While the company had positive cash flow of $60 million in the quarter that was at a similar level to last year, it remains saddled with more than $1 billion in debt, having recently secured a $450 million credit facility to refinance existing loans.
Its current order backlog stands at $4.4 billion, including $1.6 billion in optional work, giving it earnings visibility going forward.
Odfjell meanwhile stated that its newbuild semisub Deepsea Aberdeen is due for delivery in October or November from South Korean yard Daewoo Shipbuilding & Marine Engineering, ready for work on BP’s Quad 204 redevelopment project off the UK scheduled to start early next year.
However, the company warned of a softer near-term market for deep-water and ultra-deepwater rigs, evidenced by shorter lead times and a reduced tally of contract awards.
Chief executive Simen Lieungh told a results presentation that a cutback in exploration and production spending by oil companies, such as Statoil, “has led to reduced demand for engineering services due to postponement of development and upgrade projects” in the platform drilling and technology segment.
Odfjell has also seen a softening in the well services market but Lieungh said he believes the segment will continue its long-term growth trend.