Norwegian offshore rig operator Fred Olsen has kicked off what could be a grim June quarter reporting season for this sector, with its earnings before interest and taxation of $US19 million ($A20.23 million) down 81% year-on-year.
"The demand and supply imbalance is expected to increase further through 2014 and into 2015," the company said of the rig market.
"The consequence being pressure on day rates, shorter contract durations, and increased number of lay-ups, in general affecting all market segments."
According to the Australian Financial Review, rig broker Fearnley Offshore said the excess supply for floating rigs was the highest since 2010 while deepsea player SeaDrill "bobs just below the water line" despite its young fleet.
The newspaper reported that an average of day rates for these rigs had slid 25% this year to $A372,000 but worse could come with only 30 rigs landing contracts so far in 2014 compared to 107 contracts in 2013 and 167 in 2012.
"Furthermore, nearly half of the new supply for delivery this year still has no work," the newspaper said.
"The big oil companies can see the capacity glut and are in no rush to sign new contracts. They might have noticed something else, too. On today's day rates, and even with a construction cost of $US600 million, a rig owner can still earn an 11% return. This is well above most companies' cost of capital, suggesting rates could go lower still."
