Drilling Dominoes Start To Fall

[Sundrive]

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."

[Sundrive]

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 Advantage

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.”

[Sundrive]

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.

Revenue sources
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).

4Q15 revenue
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.

Future 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.

[Sundrive]

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.

[Sundrive]

Where to Park Your Unloved Oil Rig

http://www.bloomberg.com/news/photo-essays/2016-02-18/oil-price-crash-rigs-parked-in-cromarty-firth-scotland

[Sundrive]

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.

[Sundrive]

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.

[Sundrive]

· 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.

[Sundrive]

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.

[elladastar]

Интересно и куда же эти 250000 безработных подадуться?

[Sundrive]

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.

[Sundrive]

Интересно и куда же эти 250000 безработных подадуться?

ну зная их жадность до денег и лень тут мало вариантов - LNG & Pleasure crafts 

[Sundrive]

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.

[Sundrive]

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.”

[Sundrive]

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.