Norway’s idled offshore oil fleet faces even more pain

The offshore fleet tending to Norway’s oil industry, already sailing through the worst downturn in a generation, is in for even more pain, according to the head of the Norwegian Shipowners’ Association.

Almost one in four offshore vessels, or about 140 units, and half of the floating rigs, or about 20 units, are now out of work, chief executive Sturla Henriksen said.

He sees that going “from bad to worse” over the next year, with as many as three in four rigs idled by the end of 2017 and no real recovery in sight.

“It’s a highly challenging situation, but it will get worse,” he said in an interview in his Oslo office.

“It will still be bad two to three years from now, and maybe longer.”

There will only be demand for 14 of about 40 floating rigs in Norway next year, Jarand Rystad, managing partner of consultancy Rystad Energy, said at a conference in Stavanger, echoing Henriksen’s forecast.

More than two years after crude prices started to collapse, oil companies worldwide have cut spending by hundreds of billions of dollars, decimating demand for services from drillers, seismic surveyors and supply vessels.

Norway, western Europe’s biggest oil and gas producer and home to one of the world’s biggest offshore fleets, has been battered by the downturn.

The industry has cut more than 40,000 jobs since 2014 and the government resorted to the first-ever withdrawal from its massive wealth fund to cover budget needs.

Mr Henriksen’s grim predictions echo comments from analysts and companies such as Seadrill, owner of the world’s third-biggest offshore rig fleet. While utilisation rates for floating rigs could reach a bottom as soon as the beginning of next year, it’s impossible to say when rental rates would recover, Seadrill CEO Per Wullf said in September.

And many contracts signed before the downturn are now expiring, meaning a crucial cash-flow lifeline will be lost as deals are at best re-negotiated at rates near operational costs, Mr Henriksen said.

“It’s now starting to bite in such a way that the structural consequences are coming,” he said.

“We’re going to see changes both in the ownership structure and for the companies.