Songa Beats Street, But Sees Market Weakness Ahead

Posted by Joseph Keefe November 10, 2014

Norwegian rig company Songa Offshore reported a forecast-beating core profit for the third quarter although it said weak demand for drilling rigs would remain subdued into 2015 before picking up from late 2016.

The company's shares rose 5.8 percent on the better-than-expected earnings by 1200 GMT, outperforming a 1 percent rise on the Oslo benchmark.

Songa, which operates three rigs under long-term contract with oil and gas firm Statoil and expects delivery of four new vessels next year, reported earnings before taxes, depreciation and amortisation (EBITDA) of $40.6 million, ahead of expectations for $27.3 million in a Reuters poll of analysts. . EBITDA fell from $50.6 million a year earlier.

Songa said it expected weakness in the floating rig market offshore Norway to continue into 2015 but expected a pick-up from late 2016. It had previously said it expected the market to improve from the beginning of the second half of 2015.

"As a result of the dampened activity, there are several rigs that have left or are expected to exit the NCS (Norwegian continental shelf) in the near future," the company said in a statement.

Rig operators have been hurt this year as new rigs enter an already oversupplied market, and oil firms delay or cancel projects to save cash after a 10-year spending spree and a significant fall in crude prices since June.

"The company is still quite optimistic about 2016, but that is still a little bit early to call, so financing and market uncertainties surrounding the company is probably more important than the actual performance in the quarter," Danske Bank analyst Sondre Stormyr said.

On Oct. 6 Statoil said it had idled a Transocean and a Songa Offshore drilling rig due to high costs and lack of work.

Transocean, the owner of the world's largest offshore drilling fleet, said last week it expected to incur impairment charges of $2.76 billion in the third quarter and would delay its results for the period.

Songa, which has taken two of its older rigs out of service over the past year, is planning to take delivery of four new vessels next year, all of them under eight-year firm contracts with Statoil.

Songa said delivery of its first innovative Cat D rigs, tailor-made for Statoil, will be delayed to the second quarter from the first quarter while the other three remain on schedule.