Other Languages => All languages except Russian => Тема начата: Sundrive от Январь 11, 2015, 10:05:00 pm
Ultra-Deepwater Rig Contract Cancelled Early As Drilling Dominoes Start To Topple
Yesterday, the land drillers disclosed early terminations as Helmerich & Payne said in an investor presentation that 60 of its shale rigs are going idle.
Today, it is the offshore drillers' turn. Ocean Rig disclosed a notable rig contract cancellation in a footnote on its operations update this morning.
The land drillers got hit with plenty of early terminations in the prior downcycle, and it is not surprising that they are receiving notices again this time. But ultra-deepwater rig contracts are generally pretty iron-clad, and early terminations are not common even in downturns.
Today's news is a sign of the lengths E&P companies are prepared to go to cut costs as their cash flows are pressured by plummeting oil prices.
Total E&P Terminates Ocean Rig Olympia Contract 6 Months Early
The Ocean Rig Olympia, a 3-year old UDW drillship, is going to be released by its operator, Total, about 6 months earlier than expected.
Total has notified Ocean Rig management that it intends to hand back the rig during 1Q15 after completing its present well instead of in August 2015 as the contract stipulates. The Ocean Rig Olympia is drilling for Total in about 6,500 ft. of water offshore Angola.
Total also has contracts outstanding on two other Ocean Rig ultra-deepwater rigs (the Apollo and the Skyros) for work in West Africa. And Total has contracts outstanding on four Seadrill ultra-deepwater rigs (the West Phoenix, the West Eclipse, the West Gemini, and the newbuild West Jupiter). All the contracts the French major has outstanding with its suppliers are now worth watching to see if Total attempts to back out of other deals as well.
Conditions Offshore Are Deteriorating Quickly
In October 2014, the outlook for this rig looked much different. At that time, Total agreed to extend its LOI, extending the option exercise date for two additional one-year-periods.
George Economou, Ocean Rig's CEO, was optimistic then, saying: "TOTAL’s LOI extension for the Olympia is a positive sign for the future prospects of the UDW market. We see various requirements from clients for additional drilling programs in Angola. We believe that, as oil companies are finalizing their budgets for 2015, we will get a much clearer picture of the long-term supply and demand balance, which may be tighter than market expectations."
Seadrill Ltd., the offshore oil driller controlled by billionaire John Fredriksen, said the rig market is unlikely to recover for at least two years following a slump in crude prices.
“You may see a stabilization in 2017,” Chief Financial Officer Rune Magnus Lundetrae said in an interview in Oslo. “That means you get day rates that at least cover costs including funding.”
Daily rates for chartering offshore rigs in the spot market, meanwhile, may fall further after sinking below $400,000 for the most advanced vessels from $650,000 less than two years ago, Lundetrae said at a conference. Rates may climb back toward $400,000 during 2017, roughly the level rig owners need to cover expenses including debt, he said.
An almost 50 percent plunge in crude prices since July has led oil companies from ConocoPhillips to Norway’s Statoil ASA and OAO Rosneft of Russia to cut investments, reducing demand for services such as offshore drilling. Rig owners were already struggling with a glut of new vessels ordered during the past decade’s oil-industry spending boom.
Ensco Plc, Transocean Ltd. and Seadrill, the three biggest offshore drillers, have cut dividends, costs and rig deliveries as they adapt to lower demand and contract cancellations.
“There’s a buildup of overcapacity,” Ivar Brandvold, chief executive officer of Fred Olsen Energy ASA, an Oslo-based driller, said Wednesday. “That is going to be the prevailing situation in 2015 and also into 2016.”
Seadrill fell 1.7 percent to 82.65 kroner at 9:47 a.m. in Oslo, the lowest level in more than a month. Fred Olsen rose 1.6 percent to 65.5 kroner. Seadrill has plunged 61 percent and Fred Olsen 67 percent over the past 12 months.
Seadrill expects to make acquisitions once competitors’ valuations have fallen further. As the company saves cash after suspending dividends in November, a continued deterioration of the market may give Seadrill an advantage, Lundetrae said.
“Some companies will be even more distressed than today” when the market starts improving, he said Wednesday. “Then they won’t have the muscles to lift themselves, and we can come in and swipe the table.”
Seadrill, based in Hamilton, Bermuda, and its 70 percent- owned subsidiary North Atlantic Drilling are in discussions with Moscow-based Rosneft on a rig agreement that’s been delayed by international sanctions against Russia.
Seadrill said last week it would be “very challenging” to close the deal by May.
The accord, which includes $4.1 billion in offshore-rig contracts and North Atlantic’s acquisition of about 150 onshore rigs from Rosneft, will only go through if these two components are included, Lundetrae said. “It’s everything or nothing.”
Ocean Rig’s 4Q15 Revenue: The Rise before the Fall.
Top line remains constant
In 3Q15, Ocean Rig’s (ORIG) revenue was $437 million. It was just 1% higher than $433 million in the previous quarter. The company experienced fewer operating days in the third quarter as compared to the corresponding period last year. This negatively impacted the revenue by 15% in 3Q15 as compared to 3Q14.
Ocean Rig’s revenue depends on two ultra-deepwater drilling rigs and eight drillships. The company doesn’t operate any jack-ups in contrast to other offshore drillers (IYE)(XLE) like Seadrill (SDRL), Ensco (ESV), Rowan Companies (RDC), and Diamond Offshore (DO).
In August 2015, the company’s rig Olympia started its contract in Angola. The full impact on revenue will be seen in the company’s fourth quarter revenue. Also, the beginning of Ocean Rig Skyros’ contract will positively impact fourth quarter revenue. The rig started its operations in October with Total in Angola.
In the third quarter, the company achieved a utilization rate of 96.3%. In the conference call, the company stressed the importance of a high utilization rate in today’s challenged environment from an earnings perspective as well from a contract renewal perspective. At the least, the company will try to maintain its utilization rate. With all these factors, Ocean Rig (ORIG) is bound to record a higher revenue in the fourth quarter as compared to third quarter revenue.
In 2016, Ocean Rig’s contracts on four rigs will expire. The company is currently marketing these four rigs. The company announced plans to cold stack or even scrap two of these rigs if it can’t secure contracts for them. Scrapping rigs will hamper the company’s future revenue potential.
In the current environment, it is difficult to secure new employment or contract extensions for rigs. Even if the company secures new contracts, they would be at a very low day rate. One example of an awful day rate in this depressed industry is Transocean’s (RIG) new contract on its semisubmersible, which was 51% lower than its existing day rate at one of the lowest rates in the industry. As a result of all these factors, a dip in the company’s 2016 revenue is inevitable. In 2017, two more contracts will roll off, and we will continue to see a declining trend in the company’s revenue.
Eni Terminates Contract for Ultra Deepwater Drillship Ocean Rig Olympia.
Italian oil company Eni has terminated its contract for the ultra deepwater drillship Ocean Rig Olympia due to collapsing oil prices.
The early termination was announced Thursday by offshore drilling contractor and owner of the drillship, Ocean Rig.
Ocean Rig said that the decision was made “due to the dramatic fall of the crude oil price and the volatile market context”, causing Eni to reassess its drilling activities and exercise its right to terminate the contract early.
The Ocean Rig Olympia was contracted by Eni in May 2015 to drill offshore Angola commencing in the third quarter of 2015 for minimum of 8 months, putting the contract expiration to at least February 2016.
Where to Park Your Unloved Oil Rig
Semi-submersible accommodation vessel owner Prosafe is laying up two more rigs due to cuts by Mexican oil company Pemex, meaning that all five of Prosafe’s rigs working off Mexico will be out of operation.
Prosafe said Monday it was informed by its Mexican client Cotemar that Pemex has decided to suspend its contracts for the accommodation vessels Safe Regency and Safe Lancia beginning in mid-March 2016, at which point the rigs are likely to be demobilized to a suitable lay-up location.
Prosafe says suspensions are a result of Petr?leos Mexicanos, or Pemex, cutting spending in order to adjust their budget to match an oil price of $25 per barrel.
Pemex has already suspended contracts for three Prosafe rigs; Safe Britannia, Jasminia and Safe Hibernia. The company says that Safe Britannia is currently being demobilized out of Mexico and is available for charter, while the Jasminia and the Safe Hibernia are being prepared for cold-stacking in the U.S.
Prosafe said it would continue to work proactively with Cotemar to address the challenges being faced in Mexico with hopes that it will be well placed to react when the market in Mexico recovers.
Worlwide, Prosafe is now expected to have 10 out of 14 accommodation rigs idle, according to Reuters.
Safe Lancia was originally contracted until the end of 2016 while Safe Regency was contracted until the end of 2017.
Norwegian oil major Statoil has decided to terminate its contract for the charter of the semi-submersible rig COSL Innovator, as well as suspend drilling operations with sister rig COSL Promoter.
Statoil said the decision to terminate the contract for the COSL Innovator is part of its contractual right. The contract will be terminated immediately and with no penalty.
“The conditions for terminating the contract signed with COSL Offshore Management AS have in our opinion been met, and we therefore choose to use our contractual right to terminate the contract,” commented Geir Tungesvik, Statoil’s senior vice president for drilling and well.
Statoil announced it will also suspend drilling operations with the rig COSL Promoter when it is safe to discontinue well operations in order to enable COSL to implement the necessary actions in order to fulfill the requirements of the contract, according to Statoil.
COSL says it strongly disagrees with Statoil’s decision on both contracts and that it will take legal action if necessary.
The two drilling contracts are for operations in the Troll Field offshore Norway. COSL says the remaining terms of two drilling contracts are 4 years and 8 months, and 5 years and 1 month, respectively.
· Moody’s has downgraded six major offshore rig providers (Ensco, Diamond , Transocean, etc) as they see oversupply and cutbacks in capex and opex by majors;
· Global offshore spend is set to decline significantly, with the big impacts being Western Europe (19%), SE Asia (17%), US (20%);
· The majors are cutting back capex, with ExxonMobil down (20%), Conoco Philips (30%), BP (16%), Chevron (12%);
· Of the 433 odd existing rigs, only 58% (250) are under contract;
· There are 183 idle jack-ups, 56 of which are cold stacked;
· The two most impacted areas are the shallow waters of the GOM (31% decline in rig utilisation) and SE Asia (38% decline);
· Average charter rates are down, between 20% and 40% – in the jack-up market beyond 375 ft rates are down by as much as 38%;
· Of the 97 jack-ups under construction, only 11 have contracts and more importantly, 63 have had delivery dates extended.
· BW Offshore cutting staff levels by 35%;
· General charter rates in the OSV markets have fallen by 27% since January 2015;
· Only 96 offshore fields discovered globally in 2015, down 19% on 2014;
· Only 68 offshore fields started in 2015, down by 41% on 2014;
· The OSV market has declined by 11% between 2014 to end-2015;
· The oversupply of OSV vessels with 198 new vessels expected to enter the market.
More than 250,000 employees in the oil and gas sector worldwide have lost their jobs as a result of the downturn, according to Graves & Co., a Houston-based industry analyst.
Интересно и куда же эти 250000 безработных подадуться?
Ocean Rig and its largest stakeholder Dryships reported their fourth quarter 2015 earnings today, posting significant losses as they battle dual headwinds in offshore drilling and bulk shipping.
Ocean Rig reported a net loss of $175 million on revenues of $475 million in Q4, overwhelmingly due to a $400 million impairment on the value of its drillships and harsh environment semisubmersibles.
The firm has recently suffered three early contract terminations – by Premier Oil, for the Eirik Raude, by an ENI subsidiary for Ocean Rig Olympia and by Total E&P Congo for Ocean Rig Apollo – and it has begun arbitration proceedings to dispute the Raude and Olympia actions. All three are being stacked, leaving Ocean Rig with seven rigs and drillships on hire out of thirteen.
George Economou, CEO of Ocean Rig, said that “terminations act as a reminder of the extremely challenging times facing the offshore drilling industry. The prospects for the industry remain bleak with limited visibility of new contracts and are likely to remain so at least until 2018.”
Not all is bleak, though; Ocean Rig has about 90 percent contract coverage this year for currently operating rigs/drillships, with a bit over 50 percent next year. The firm has also gained a contract with Lundin Norway for the use of the Leiv Eiriksson semi-sub, starting in the third quarter 2016 - the firm hasn't released the day rate or contract duration, but the vessel's backlog was given as $24 million.
Greece-based firm Dryships, also run by Mr. Economou, reported a dire fourth quarter, due in part to Ocean Rig’s results.
Dryships' revenues have dropped severely, cut by the downturn in its dry bulk business – to $25 million for the quarter, down from $600 million year over year – but the firm took an added loss of $300 million writing down the value of its stake in Ocean Rig, which stands at about 40 percent of outstanding shares.
Ocean Rig's stock is trading in the range of $1, down from $20 two years ago.
Dryships has also announced a restructuring program for its maturing debt facilities. “Three . . . bank facilities have matured and the Company has not made the final balloon installment. For the remaining bank facilities, the Company has elected to suspend principal repayments to preserve cash liquidity,” the firm said.
Интересно и куда же эти 250000 безработных подадуться?
ну зная их жадность до денег и лень тут мало вариантов - LNG & Pleasure crafts :rabbi: :dirol:
South Korea’s Daewoo Shipbuilding & Marine Engineering will cut 12,000 jobs from its workforce by 2019 as it tries to revive its business following a crash in oil prices and severe downturn in the offshore oil and gas sector.
“We are planning to reduce the number of employees to a similar level to 2009 and 2010 when management efficiency was the highest,” DSME CEO Jung Sung-leep said in a press conference at the firm’s headquarters in Seoul, the Korean Herald reports.
DSME’s current workforce is about 42,000.
The shipbuilder said the job cuts will occur gradually over the next few years, versus a radical slash in headcount, the Herald reported.
Earlier this week DSME, the world’s second-biggest shipbuilder, posted a record loss totaling $4.3 billion in 2015 as it wrote down more charges from offshore projects under construction.
A crash in oil prices over the past 18 months has caused DSME customers particularly within the offshore oil and gas sector to cancel or postpone orders.
Transocean Ltd. Chief Executive Officer Jeremy Thigpen expects it will have to wait at least another three years before his company can begin charging higher rates for offshore rigs. Schlumberger Ltd. chief Paal Kibsgaard sees the oil industry, stuck in the deepest financial crisis ever, in no rush to get rigs back online even after prices recover.
Before rig owners can charge more, they must first see a boost in activity after the worst crude market crash in a generation. Transocean doesn’t expect an increase in rig leases until late next year or sometime in 2018, Thigpen said Monday in an interview at the Scotia Howard Weil Energy Conference in New Orleans. Daily rates, which have fallen by more than half over the past two years, aren’t expected to climb until 2019 or 2020, he said.
“I think ’16 and ’17 are going to be tough,” said Thigpen, who joined the Vernier, Switzerland-based company 11 months ago. “We’re taking the necessary steps to navigate our way through the downturn, but we’re also preparing for that eventual recovery.”
Oil crash victim: Angola asks IMF for bailout
Africa's third largest economy is crumbling under low oil prices and has turned to the lender of last resort: the International Monetary Fund.
Angola has requested help from the IMF including an "economic program" that could be "supported by financial assistance," according to the IMF. In other words, the country is seeking a bailout.
Africa's second largest oil producer has been running out of cash since the crash in oil prices that began in 2014. Oil accounts for about 75% of government income and 95% of export revenues.
Angola's currency, the kwanza, is down 16% this year, making the country's dollar-denominated debt more expensive to service. In its international market debut last year, Angola issued a $1.5 billion 10-year bond with a yield of 9.5%.
Christine Lagarde: Troubled oil countries keep me up at night
Angola has also borrowed money from China, secured by oil. Those loans are squeezing state finances.
Balancing the budget has been a challenge, and the country is slashing spending by 20% in 2016.
Angola, like many African oil producing nations, is not diversified enough to weather the effects of the weak oil price. The sub-Saharan nation also subsidizes fuel, something the IMF has already warned against.
In 2013, Angola spent 4% of its budget on fuel subsidies.
The IMF-Angola talks will take place at the IMF spring meeting in Washington next week.
Angola last received help from the IMF in 2009 after the global financial crisis. That program was worth $1.4 billion.
It has been estimated that about 75 OSVs are being laid up in west Africa, followed by 100 vessels each for the North Sea region and Brazil, as well as another 150 vessels cold-stacked in US, based on February data from US marine service firm Jackson Offshore Operators.
At present there are 47 cold-stacked floating rigs globally.
The OSV market may need another 10–15 years to rebalance demand with the supply glut, before we see another round of wholesome orders of newbuilds. Prior to the supply/demand equilibrium, Brent crude oil prices might need to stabilise at USD80/barrel first, before more OSV demands kick in.
Day rates fall 40%
Latest new fixtures show average contracted day rates for floaters falling as low as $265,000, a drop of more than 40% compared to the 2014 average of about $450,000 per day. Jackup day rates also fell 40% from a 2014 average of $140,000 per day to $90,000 per day in fourth-quarter 2015.
Another problem for the industry is a glut of offshore supply vessels (OSVs) that serve oil rigs. The number of such vessels rose 83 percent between January 2008 and June 2015, whereas the number of drillships, jackups and semisubmersibles increased only 38 percent, IHS Energy data shows.
The global OSV fleet will rise by another 9-18 percent this year, on top of the 4,400 ships already operating, according to ship broker Banchero Costa.
Charter rates have dropped by two-thirds for some vessels in the last two years, from between $17,000-$20,000 a day in March 2014 to around $6,000 now, according to shipping services firm Clarkson.
A.P. Moeller-Maersk A/S is adapting its cost base to prepare for the risk of lower crude prices as the world keeps producing more petroleum than it can consume, according to the chief executive officer of the Danish shipping and oil conglomerate.
Oil has risen about 60 percent from a 2016 low. But the risk that prices will again fall is forcing Maersk’s oil unit to explore bigger cost cuts than previously planned, said group CEO Nils Smedegaard Andersen.
“The price will obviously be driven by the balance between supply and demand and there will be oversupply for many months still,” he said by phone from Copenhagen. “It definitely can’t be ruled out that the oil price will fall again.”
Brent crude has rebounded as lower U.S. output removes some excess supply from the market. One barrel traded at about $45 on Wednesday, compared with a low of $28 in the middle of January.
“I have previously said the oil price was too low, but it’s very plausible that the balance between supply and demand will continue to be unfavorable,” Andersen said.
Maersk Oil, which has its main operations in the North Sea and Qatar, raised its full-year forecast and now sees the unit breaking even, compared with a forecast for a 2016 loss in February. The unit can now break even with oil at $40 to $45. It previously said oil needed to trade at about $45 to $55 in order to avoid a loss.
The division cut costs by 21 percent in the first quarter, a higher rate than the 20 percent it targets for end-2016 when comparing with 2014 levels. That means cuts will probably end up deeper than initially planned, the CEO said. Those measures helped Maersk deliver a bigger profit than analysts expected, driving its shares up as much as 6.7 percent on Wednesday.
“We’re happy we’ve reached the goal we set,” Andersen said. “We will definitely work on cutting costs even further.”
Maersk Oil reported a net operating loss after tax of $29 million in the first quarter, compared with a profit by the same measure of $208 million a year earlier. The loss was smaller than the $58 million predicted in a survey by Ritzau.
“We don’t outright expect that the oil price will fall, but we want to make sure we have a solid oil business even at an oil price in the $40 to $50 range,” Andersen said.
Only 325 offshore wells will be drilled worldwide this year, down from 410 last year and 595 in 2014, according to data compiled by Bloomberg.
ну 325 это тоже дофига, значит работа есть.
International offshore drilling contractor Ensco is planning to cut about 350 of offshore jobs as the company plans to stack more rigs amid the downturn in the offshore oil and gas market.
The job cuts were revealed in a letter to the Texas Workforce Commission reported by the Houston Business Journal. Ensco is based in London but its operations are managed out of its Houston, Texas office.
The rigs to be stacked include three drillships, the DS-3, DS-4 and DS-5, as well as the company’s 8500 semi-submersible, the report said.
The company’s most recent fleet status report, released April 11, showed the DS-3 as under contract with BP in the Gulf of Mexico until June 16. The DS-4 was listed as available, while the DS-5 is supposed to be under contract with Petrobras, but the drillship remains in the GoM as Petrobras has declared the contract void amid its massive bribery scandal. Meanwhile, the Ensco 8500 was listed as undergoing cold stacking preparations.
According to the Houston Business Journal report, Ensco is expected to move the DS-4 and DS-5 from the GoM to the Canary Islands for cold stacking, where they will be better positioned to pick up future work.
Including the four rigs mentioned here, the company will now have 15 rigs cold stacked, according to its website.
Seadrill Ltd., the offshore rig operator controlled by billionaire John Fredriksen, says the worst market downturn in a generation has finally hit bottom, even if a recovery is still a couple of years off.
“From a drillers’ perspective, we’re now at the bottom of the market rate-wise,” Chief Executive Officer Per Wullf said in a phone interview from London. “It can’t get any worse.”
While the price of Brent crude rose past $50 a barrel for the first time in more than six months, it will need to remain stable for longer for oil companies to hire more rigs, boosting a utilization rate that’s only 56 percent for floating units globally, Wullf said. Utilization won’t get “much worse than now,” but it could be at least a year before it improves, and only then will rental rates start to do the same, he said.
“We know 2016 is ugly, we know 2017 is ugly,” the CEO said. “It’s not fun until 2018.”
Crude’s collapse since 2014 has pummeled offshore drillers such as Seadrill and Transocean Ltd. as it led their clients, the oil companies, to slash spending, reducing demand just as a wave of new rigs was already inflating supply. Day rates for the most advanced rigs have fallen to less than $250,000 compared to as much as $650,000 at a 2013 peak as drillers accept lower pay to get new work or extend existing contracts.
Seadrill, whose first-quarter earnings beat estimates earlier Thursday, will probably announce more blend-and-extend deals with clients, where extensions are coupled with other amendments, during this quarter, Wullf said.
Seadrill faces the highest debt burden among its peers at almost $10 billion, and is negotiating a restructuring with all stakeholders. The plan has entered its second phase with full backing from the board, led by Fredriksen, and should be finalized by the end of the year, the CEO said. Analysts from banks including Nordea AB and DNB ASA have estimated the final agreement will include at least $1 billion in new equity.
“Our package of course includes some new capital in some form,” Wullf said. “The analysts have guessed pretty well” on the scope of the capital need, he said, declining to provide more specifics.
The recent sale of a drillship called Cerrado for less than 10 percent of its 2011 new-build price was seen by some analysts, including Alex Brooks of Canaccord Genuity Ltd., as bad news for rig-owners and their creditors. That deal, which saw Ocean Rig UDW Inc. buy the vessel for $65 million, won’t affect Seadrill’s refinancing or have any impact on the market, Wullf said.
“We cannot be the slave of one or two deals being done,” he said.
Seadrill wouldn’t be interested in this kind of acquisition until it strengthens its finances, Wullf said. The CEO even said the drillship was overpriced, considering the market outlook. :dirol:
“A rig like this, that hasn’t worked for a year, that’s had different owners, it would probably be very hard to justify to pay more than was paid for it — and it was probably too much to be honest,” he said. “It’s pure liability.”
A surprising force has helped lift oil prices back to the $50 threshold: militants blowing up oil facilities in Nigeria.
The recent wave of sabotage on Nigeria's oil infrastructure has knocked nearly 1 million barrels of daily production off line, adding to the country's financial stress and dethroning it as Africa's biggest producer. Nigeria's oil production plunged to an average of 1.4 million barrels a day in May, its lowest monthly pace since the late 1980s, according to the U.S. Energy Information Administration.
The attacks, carried out by a militant group known as the Niger Delta Avengers, combined with wildfires in Canada to deliver a powerful one-two punch to world oil supplies. Now the huge surplus that sent crude crashing to $26 a barrel in February appears to be fading, with oil nearing a balance between supply and demand.
Why oil could return to $30 a barrel this year.
The oil crash is over, right? Maybe not.
At least that's the warning from Morgan Stanley, which argues crude oil prices could spiral downward later this year to as low as $30 a barrel.
It's a counter intuitive warning, given that oil prices have actually soared by nearly 100% since mid-February. But Morgan Stanley points out that the huge rally has been driven largely by unexpected supply outages in Nigeria, Canada and elsewhere, all of which won't last forever.
"Oversupply is likely to return as outages resolve, and prices could fall back into a $30 to $50 oversupply pricing regime," Adam Longson, Morgan Stanley's lead energy commodity strategy, wrote in a report this week.
The Morgan Stanley call could serve as a warning to oil bulls who believe the epic supply glut is over for good and the market is finally poised to flip into deficit.
But here are three reasons why Morgan Stanley warns that rebound could prove to be self-defeating:
1.) Outages to fade: Canada is "likely to mostly recover" by mid-July from the wild fire disruptions. And maintenance outages in the North Sea and Brazil should also recede soon. Longson argues that Canada's return alone should be "enough to pull the market back into oversupply," even if Nigeria continues to struggle. In a worst-case scenario for oil bulls, Libya could finally get back to pumping oil knocked offline by the civil war there.
2.) Inventories still a challenge: There's a lot less talk about the storage tanks overflowing these days, but the situation isn't exactly bullish either. Inventories "remain high" -- OECD crude levels are 83 million barrels above 2015 levels, Morgan Stanley wrote.
3.) Don't count out U.S. frackers: There are already signs that higher prices may be incentivizing struggling U.S. producers to tap drilled-but-uncompleted wells for oil. Also, the U.S. horizontal drilling rig count has been either flat or up in the past three weeks.
Of course, this wouldn't be the first oil rally fake out. Morgan Stanley notes "plenty of similarities" with the false 2015 oil rally and points out that history shows severe downturns often enjoy strong mid-cycle bounces that ultimately end in tears.
Iran Plans to Double Crude Export.
Iran plans to double crude exports so long as the increase in shipments is absorbed by global markets, which it sees as stable for the rest of the year, according to a senior official at state-run National Iranian Oil Co.
The country is exporting about 2 million barrels of its daily output of 3.8 million, said Mohsen Ghamsari, NIOC’s director of international affairs. It has regained about 80 percent of the market share it held before the U.S. and European Union tightened sanctions on its oil industry in 2012, he said. Iran plans to double crude exports.
“We are not very far away from our pre-sanctions peak and we will soon attain that share,” Ghamsari said in an interview in Tehran. “Our exports peak is above 4 million barrels a day, and we have plans for that and are waiting for the right conditions,” he said, without elaborating on the timing for such an increase.
The Persian Gulf nation is seeking more than $100 billion in investment from international partners to upgrade its oil industry and reclaim its position as the second-biggest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia. Iran targets 5.8 million barrels a day in combined production of crude and condensates by 2021. It defied skeptics with a 25 percent surge in production so far in 2016 and aims to reach an eight-year high for daily output of 4 million barrels by the end of the year.
Transocean has earned itself a "Fallen Angel" title.
A fallen angel is a bond issuer whose rating has been downgraded from investment grade (BBB- or higher) to speculative grade (BB+ or lower).
100,000 oil jobs could be coming back.
Good news laid-off oil workers: U.S. energy companies could soon face a serious worker shortage.
Goldman Sachs believes the American oil industry is about to stage a big comeback from the painful downturn and big job losses caused by oversupply.
As more oil fields come on line and America's oil boom gets back on track, there simply won't be enough people to do the required drilling, well completion and other logistical work. Cheap oil wiped out nearly 170,000 oil and gas jobs since late 2014 as desperate companies scrambled to cut costs and avoid bankruptcy.
That means just to keep up with the expected ramp-up in drilling activity, the oil and gas industry would need to add 80,000 to 100,000 jobs between now and the end of 2018, Goldman predicted in a recent report.
The estimate is based on Goldman's forecast for U.S. oil production to resume growing next year after the recent drop to two-year lows. That growth would require some 700 oil rigs to be added -- and each one supports an average of 120 to 150 employees.
Jeff Bush, president of oil and gas recruiting firm CSI Recruiting, agrees that a "worker shortage" is coming.
"When we get back to a reasonable level of activity, there's going to be a supply crisis of experienced personnel. I just don't see any way around that," said Bush.
That would be incredible news for people like John Ratcliffe. The 55-year-old has struggled to find work since he was laid off by Transocean (RIG) in March after eight years as chief mate aboard vessels operated by the offshore drilling contractor.
"It has been rough," Ratcliffe told CNNMoney. He said he knows of at least one former coworker who has committed suicide since the downturn began.
The struggle has forced Ratcliffe to recently leave his residence in New Hampshire for a temporary job with Rowan (RDC), another offshore drilling company, in Curacao, a Dutch island in the Caribbean.
Ratcliffe is not alone. The list of America's biggest job-killing companies this year is dominated by energy companies, large and small, including National Oilwell Varco (NOV), Schlumberger (SLB), Halliburton (HAL) and Chevron (CVX).
All told, Goldman estimates that 170,000 oil and gas jobs have disappeared during the downturn. That's far worse than the 87,000 jobs wiped out during the last downturn in the middle of the Great Recession.
"It's been brutal. You've seen a lot of good people get handed their walking papers, with really no option as far as other employment opportunities," said Bush.
Some former oil workers have found jobs in the construction industry, though these jobs often come with lower salaries. The average pay in the oil and gas business is 63% higher than construction -- and 84% higher than the national average, Goldman said.
Bush said people who have a "niche skillset" in jobs such as petroleum engineering and geology have had difficulty finding work because their talents aren't easily transferable to other industries.
The shale oil and gas revolution created an influx of jobs, with 233,000 created between mid-2009 and late 2014, Goldman estimates.
"The industry was poaching people from every industry imaginable to get them to move to North Dakota or Alaska to work on rigs or drive trucks," said Bush.
That task was made easier by the large pool of Americans looking for work following the Great Recession.
Even though the labor markets look pretty healthy these days, Goldman thinks oil companies will be able to hire enough talent, in part because of their willingness to pay better salaries.
"Oil and gas companies, as they have traditionally done, will throw money at the problem," said Bush.
The pace of North Sea oil-field shutdowns is picking up as the impact of the market slump is compounded by the uncertain investment environment created by Brexit.
Projected spending on decommissioning in the British sector in the decade to 2024 has risen to $22.4 billion (16.9 billion pounds), according to Oil & Gas UK, an industry group. That’s 16 percent higher than a 10-year forecast in 2014 as more sites are targeted for closing, it said.
The rout in crude to less than $50 a barrel has left about 30 percent of fields in the U.K. North Sea, one of the world’s highest-cost regions, operating at a loss, according to consulting firm Wood Mackenzie Ltd. The collapse was pushing more producers to hasten plugging wells on the sea floor even before the U.K. decision to leave the European Union.
“This has increased the number of fields we expect to cease in the near term, which has increased decommissioning costs,” said Fiona Legate, an analyst with Wood Mackenzie in Edinburgh. “There is a lot of political uncertainty in the U.K. following Brexit and this adds another complexity in investment decisions.”
About a third of operating platforms in the U.K. are more than 30 years old, which is beyond their original design life, Legate said. While $100 oil justified technological upgrades to keep them running, that’s changing. Oil production in the region averaged 965,000 barrels a day last year, down from a peak of 2.9 million in 1999, according to BP Plc data.
Wood Mackenzie expects spending on decommissioning, including removing steel structures offshore, to top 23 billion pounds in the decade to 2025. Budgets will triple to 2.8 billion pounds in 2018 from 899 million this year, it said. The estimate is so much higher than that of Oil & Gas U.K. because the costs are uncertain at this point, given how little decommissioning has taken place, the firm said.
Royal Dutch Shell Plc, one of the biggest North Sea operators, is shutting down the Brent field, which since the 1970s has produced crude that helps set the global benchmark. Decommissioning has been going on for a decade and is likely to continue for another 10 years, according to Duncan Manning, who heads the program for the Anglo-Dutch company.
Crude from that field and some others in the North Sea together form the dated Brent benchmark.
Shell is now producing from just one of the four Brent platforms. Even after a full shutdown removes about 100,000 tons of metal, it would still potentially leave concrete columns half the size of the Eiffel Tower jutting from the water.
Fairfield Energy Ltd. said last year it was starting to shut down its Dunlin field, given the asset’s life cycle, depressed oil prices and challenging conditions in the North Sea. Maersk Oil said 11 months ago it was seeking approval from U.K. Oil & Gas Authority to stop production from its Janice installation.
While oil prices have rebounded from a 12-year low earlier this year, the U.K.’s June 23 vote to leave the EU has further clouded the investment climate as the potential for a second independence vote looms in Scotland, which holds the bulk of Britain’s oil fields. A poll on Scottish independence from the U.K. was defeated in 2014, but after voters there overwhelmingly backed the losing side in the referendum on EU membership, a new vote is “very much on the table,” Scotland’s First Minister Nicola Sturgeon said on June 26.
“Uncertainty may impact investment levels and lower investment can in turn potentially bring decommissioning forward for some fields,” Kimberley Wood, a partner at law firm Norton Rose Fulbright LLP in London.
The North Sea has been battered by the slump in oil prices because of its high costs and dwindling resources. Oil and gas producers in the region will spend 40 percent less this year than in 2014 and by the end of the year an estimated 120,000 jobs will have been lost because of the downturn, Oil & Gas UK said in a report last month.
Brexit will further undermine confidence in an industry propped up by government tax cuts in recent years.
“There may be a pause while companies assess the uncertainties around commodity prices, foreign exchange rates, potential tariffs and politics,” Wood Mackenzie’s Legate said.
Global drilling giant Transocean has announced a string of new contracts and the start of its newbuild drillship Deepwater Proteus on contract.
The firm has also stacked six rigs, taking its total number of currently stacked rigs to 28. The firm has also reduced day rates for on others.
The high-specification jackups Transocean Honor (last working in Gabon for Vaalco) and GSF Constellation II (last working in Angola for Chevron) have been stacked. The Transocean Driller mid-water semi (last working for Petrobras in Brazil) has been stacked. Three ultra-deepwater semis, which were previously listed as idle have also been stacked: Deepwater Millennium, Cajun Express and GSF Development Driller II.
The newbuild ultra-deepwater Deepwater Proteus started operations on its 10-year contract in the US Gulf of Mexico at a current dayrate of US$498,000. Two other newbuilds, the Deepwater Pontus and Deepwater Poseidon, are due for delivery in Q4 2017 and Q1 2018, respectively, both to Shell and with dat rates of $519,000. The Deepwater Conquerer is due to be delivered in Q4 this year to Chevron, to work in the US Gulf of Mexico, at a $589,000 day rate.
The Jack Bates semisubmersible, built in 1986, was awarded a two year contract offshore India at a dayrate of $127,000 ($93 million estimated backlog).
The Aker H-6e Transocean Spitsbergen semisubmersible, built in 2009, was awarded a one-well contract in the UK sector of the North Sea at an undisclosed dayrate. Additionally, the rig was awarded a one-well contract in the Norwegian North Sea at an undisclosed dayrate.
The Sedco 704 semisubmersible, built in 1974 and currently working for Independent Oil & Gas on the Skipper well in the North Sea, was awarded a one well contract in the UK sector of the North Sea at an undisclosed dayrate.
Estimated 2016 out of service days increased by a net 155 days due primarily to contract preparation and mobilization associated with the Jack Bates and Actinia semisubmersible (built in 1982 in Japan), and mobilizing the M.G. Hulme, Jr. semisubmersible (built 1983) and GSF Rig 140 semisubmersible (built 1983) to new contracts, said Transocean.
The deepwater Earl & Wright Sedco 700 class floater Sedco 702, built in 1973, is classified as held for sale. The rig will be recycled in an environmentally responsible manner, says Transocean.
TRANSOCEAN LTD. FLEET STATUS REPORT
OPEC smashed an all-time oil production record in July, pumping relentlessly despite the low prices.
The oil cartel produced just over 33.1 million barrels of oil per day in July, up 46,400 barrels compared to June, it said in a new report released Wednesday. That's over a million barrels a day more than it produced on average in 2015 and 2 million more than in 2014.
OPEC confirmed OPEC crude oil production achieved a historical record in July.
The cartel has been pumping relentlessly for the last two years, aiming to defend its market share despite the collapsing oil prices. OPEC produces just under 35% of crude oil globally. That compares with the low of 32.6% it controlled in April 2014.
Saudi Arabia is leading the pack, producing nearly 10.5 million barrels per day in July, up 30,000 compared to its output in June and also a new record high. Iraq, Iran and the United Arab Emirates also increased their output last month, making up for the lower production in Nigeria and Venezuela.
Ocean Rig Sounds Possible Bankruptcy Alarm
Ocean Rig shares crashed nearly 60% Friday after the deepwater drilling contractor announced that it could wind up filing for bankruptcy amid ‘extremely negative’ market conditions that are only expected to worsen.
By mid-afternoon trading shares of Ocean Rig (NASDAQ:ORIG) had fallen 58.12% to 90 cents.
The comments from the company come as it released its unaudited financial and operating results for the second quarter ending June 30, 2016, which reported a net income of $156.1 million, or $1.83 basic and diluted earnings per share.
The results also revealed that Ocean Rig has reached an agreement with Samsung Heavy Industries to re-schedule certain installments for three drillships currently under construction at SHI, as well as postpone delivery of the first two units.
George Economou, Chairman and Chief Executive Officer of the Company, commented:
“Despite the continued positive operational performance of the Company (fleet utilization for the second
quarter of 96.3%) the market conditions remain extremely negative. Oil companies continue to reduce their offshore budgets and as more floaters come off contract in the next six months, an already grossly oversupplied market is expected to worsen. In this current and anticipated poor market environment which we expect to persist for an extended period of time, we believe it is prudent to focus on maintaining
liquidity and de-levering the Company.
“Given the ongoing distressed market environment as well as the consensus view that a recovery may not occur for several years, we have engaged financial and legal advisors to assess the viability of our capital structure and alternatives that may be available to pursue. In the recent period, we have been approached by several of our debt holders who have in certain cases also retained legal counsel and financial advisors.
While we have not made any specific decisions, it is evident to the Company and a number of its creditors
that its debt obligations will need to be amended or exchanged for new debt and/or equity securities, and
some debt holders may have little or no recovery on their investment. We continue to explore and
consider alternatives, which may include a possible reorganization under US bankruptcy laws or another jurisdiction, so that we can ride out this very difficult cycle with feasible prospects for strong, long-term
Offshore oil-rig operators, grappling with the biggest industry downturn in a generation, say they finally have the bottom in sight. The problem is, they could be stuck there for a long time.
Transocean Ltd., which owns the biggest offshore-rig fleet in the world, believes utilization for floating units will reach bottom toward the middle of next year, Chief Financial Officer Mark Mey said at a conference organized by Pareto Securities ASA in Oslo. Seadrill Ltd., which owns the third-largest fleet, said utilization could stabilize as soon as the beginning of next year, and that rental rates had already bottomed out.
Still, it’s impossible to say when those rates, which have dropped to about $200,000 a day from highs of $650,000 in 2013 for the most sophisticated units, will recover, said Seadrill Chief Executive Officer Per Wullf and Tom Kellock, a senior consultant at IHS Markit Ltd.
“We don’t know where demand is going, and that’s a reflection of the oil price,” Kellock said in an interview. “Rates are going to come back more slowly than oil prices because of the overhang and the degree of competition and the oversupply of rigs, which is not at this stage being tackled.”
Offshore drillers have been pounded by the collapse in crude prices in the past two years as oil companies slashed spending to protect their cash flow and shareholder payouts. Their predicament has been exacerbated by a wave of new rigs coming into the market that were ordered when demand was strong. Rig operators have reduced costs dramatically, but still have had to cut dividends, defer delivery of vessels and suspend or scrap existing ones.
The number of floating rigs on contract and working is expected to fall to about 120 in the middle of 2017 from about 160 currently, Transocean’s Mey said in an interview on the sidelines of the conference. It could take as long as a year before utilization bottoms out, IHS Markit’s Kellock said. As many as 60 more floaters need to be permanently scrapped, according to both Seadrill and IHS Markit.
While Seadrill said utilization rates will need to reach 70 percent across the industry before rates start improving, Transocean and IHS Markit estimated 85 percent. Regardless, a recovery depends on higher, more stable oil prices, Ensco Plc Chief Financial Officer Jon Baksht, said during a presentation at the conference Wednesday.
“You’ll have flat utilization” from the beginning of next year with operators “hunting” for work, Wullf said in an interview. “Then it’s a matter of the oil price.”
While oil has recovered from the 12-year lows it reached in January, the International Energy Agency said this week that a global glut will last longer than previously expected, persisting into late 2017 as demand growth slows and supply keeps up, driven by record output from OPEC.
For costly ultra-deepwater rigs, utilization rates of 70 percent won’t be reached until 2018 at the earliest, said Andrew Cosgrove, an analyst at Bloomberg Intelligence. “I agree rates are definitely at or near bottom, but we’re going to be walking along the ‘bottom of the bathtub’ for a while.”
An extended period at the bottom looks especially threatening for Seadrill, which has the industry’s heaviest debt load, with about $9 billion at the end of the second quarter. The company, controlled by billionaire John Fredriksen, is currently negotiating with its 42 banks before it can be able to include bondholders, Wullf said at the conference. The company aims to have a solution in place by early December, he said.
“It’s a big puzzle,” Wullf said. “I’m carefully optimistic.”
Offshore drilling contractor Transocean has announced plans to scrap three rigs previously held for sale. In a fleet update on Tuesday, the Swiss-based company said the three semi-submersible midwater floaters, Transocean Driller, Transocean Winner, and the Sedco 704 will be recycled in an environmentally responsible manner.
Norway’s Statoil has announced it has decided to cancel the contract with Stena Drilling for the mobile rig Stena Don.
The rig has been on contract to Statoil since 7 February 2014, performing operations for the Troll and Fram licenses in the Norwegian sector of the North Sea.
The original contract termination date is February 7, 2017, however Statoil says the cancellation will take effect once plugging activity on the Troll field has been completed in early November.
Stena Don will not head to the Fram field as originally planned. Statoil said the “licence does not have any work programme for the rig, nor does Statoil have any other activities where the available capacity can be used.”