RigNet connecting fewer offshore rigs as energy market languishes
WASHINGTON — Oil-and-gas telecommunications service provider RigNet says more than 90 offshore rigs it helped link to land have shut down since late 2014, with more to follow as the energy sector continues to feel the global pressure of too much production.
Oversupply of fossil fuels has created a prolonged economic downturn in the energy sector — RigNet’s core market — forcing the Houston-based company to restructure and shed employees to cope with market conditions.
RigNet president and chief executive Stephen Pickett told investors Nov. 8 that the number of customer rigs that will soon shut down grew by seven during the last quarter, bringing the two-year total to 102. The Houston, Texas-based company still provides telecom services to 194 offshore rigs, down from the 210 it served at mid-year.
RigNet relies extensively, though not exclusively, on satellites to provide communications services to the energy sector, using capacity from operators including Inmarsat, O3b and Optus. For the three months ended Sept. 30, the company reported revenues of $50.6 million, down $4.3 million from the previous quarter and $15.7 million year over year.
As a result of market conditions, RigNet embarked on a restructuring program in July to reduce its headcount by 12 percent and shrink operating costs by $3.5 million. Pickett said the company should complete its restructuring by the end of the year.
Excluding rigs under construction, shuttered, or operating in countries subject to U.S. sanctions, RigNet estimates it serves 27.5 percent of the total addressable market, down two percent from the previous quarter. Pickett said this decline stems principally from “rig-stacking,” or the closing of rig activities, and the addition of rigs by state-owned entities. The company tallied a net decline of 16 offshore rigs during its third quarter.
Facing a now multiyear enervated market, RigNet has begun diversifying its customer base beyond just the energy sector into markets where connectivity needs are largely similar, namely maritime and mining. Pickett said RigNet is targeting maritime customers not necessarily tied to drilling activity.
“Our work to organically grow our business in maritime and in the mining market have resulted in new orders valued at approximately $200,000 in Monthly Recurring Revenue (MRR) just this quarter,” he said.
Chip Schneider, RigNet’s chief financial officer, said that mining hasn’t had a material impact on the company’s financial results yet, but the company’s sales team is making progress lining up business.
Other new revenue-generating steps include regularly offering new Software-as-a-Service (SaaS) solutions previously done only as one-off engagements, and providing cybersecurity solutions.
RigNet is seeking to reduce its cost by, for example, streamlining network operations centers and reducing fixed network costs. It has also sharply reduced capital expenditures, spending $1.9 million last quarter, down from the $4.7 million in spent during the second quarter.
Pickett said RigNet isn’t finished wringing out savings.
“We do see the potential to address costs in our fixed network as well as staffing. There continue to be efficiences we can harvest from the realignment of our company’s operations,” he said.
RigNet’s ambitions beyond the energy sector are more of an expansion than than a pivot, officials said. Pickett mentioned gaining fleetwide contract renewals with three of the company’s largest customers, a contract renewal in the Gulf of Mexico, and a number of other lucrative energy sector deals. He also said the international land oil and gas business has not suffered as badly as the U.S. market, and that there is evidence of stabilization in general.
“Sometime in 2017 there should be a leveling out of the [energy] business. We are hopeful that that extends to our business as well,” he said. “We do think there is a lot of good research out there that’s starting to come to a conclusion that sometime next year we may see a bottom to this.”