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Drilling downturn could lead to takeover deals

Drilling contractors may have opportunity to snap up peers

Drilling contractors may prefer to buy than to build.
Drilling contractors may prefer to buy than to build.

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The cyclical downturn in the offshore drilling industry could see drilling contractors buy up competitiors at favourable prices, according to Fitch Ratings.

The research note said that near-term offshore demand had moderated, and that new builds to be delivered by the end of 2018 will make up a third of the world’s rig fleet.

“This has led to contracting delays, and it will also probably result in shorter-contract terms and lower dayrates over the near-term,” it added.

“These factors may lead drillers to favour buying rather than building as a means to improve asset quality and gain market share.”

Fitch said that it would be high-yield offshore drillers that would prove particularly attractive targets, as some if the newer smaller drillers have higher quality fleets and limited financial flexibility during a downturn.

“Those high-yield drillers with a large share of contracts rolling off during this time are likely to come under pressure,” said the research.  

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