Drilling Dominoes Start To Fall

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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.

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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.

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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.

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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.

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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.

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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.

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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.

Beating Estimates

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.

Cerrado Overpriced

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. 

“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.”

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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.

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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.

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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.

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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).

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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.

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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.

Brexit Cloud
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.

Investment Uncertainty
“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.

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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.

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TRANSOCEAN LTD. FLEET STATUS REPORT

http://www.deepwater.com/assets/Documents/July%202016%20Fleet%20Status%20ReportA.pdf