By Dan Molinski
Offshore drilling companies say they are mothballing or even
scrapping some of their aging drilling rigs as energy companies
respond to a global glut of oil that has sent prices tumbling.
The moves by the companies that lease and operate drilling rigs
are among the first concrete signs that the energy industry does
not think the 25% price drop since June is temporary.
"We're not seeing a lot of opportunity on the horizon right now
for 2015," said Terry Bonno, a senior vice president at Transocean
Ltd., told analysts earlier this week. The company, which owns the
world's largest fleet of deepwater rigs, said it is junking some
offshore rigs that are currently in storage, and writing down the
value of some of its deep-water vessels.
Transocean's shares have fallen by more than 50% over the past
12 months, to $27, well under the lows they hit in 2010 after the
company's Deepwater Horizon rig exploded in the Gulf of Mexico and
unleashed the worst offshore oil spill in U.S. history.
Diamond Offshore Drilling Inc. also is scrapping rigs, Chief
Executive Marc Edwards said late last month. Among them are three
deep-water drillers that Brazil's state-controlled oil producer,
Petrobras Brasileiro SA, had been leasing.
Analysts at Credit Suisse say 50 to 60 deep-water rigs could be
stored--the industry calls this cold-stacking--or junked around the
world over the next several years as contracts to operate them
expire. Building offshore rigs can cost $100 million to $700
million, so the move to turn so many of them into scrap metal is a
sign of just how difficult a situation the industry finds itself
in, analysts say.
To be sure, hundreds of offshore rigs, including many that are
decades old, remain at work in places from the Gulf of Mexico to
the North Sea to southeast Asia. Shell Corp. recently retrofitted
its 20-year-old Auger rig platform and expects it to keep producing
oil until at least 2030. And ConocoPhillips on Monday confirmed it
struck oil along with Cairn Energy Plc in offshore Senegal using
Transocean's Cajun Express deep-water rig, which entered service 13
years ago.
But as a whole, the offshore industry is suffering.
"Offshore conditions continue to weaken at an escalating pace,"
said Angeline M. Sedita, an analyst at UBS Investment Bank in New
York.
Some experts argue the offshore industry was starting to
struggle even before oil prices began falling. A boom in rig
construction in recent years, when oil prices were high, ended up
saturating the market.
Over the past five years, the number of offshore rigs has jumped
to 867 from 687, according to the Houston office of IHS, the
consulting firm. The percentage under contract has risen to almost
81% from 73% in 2009.
To stay afloat until oil prices climb, offshore firms are also
cutting prices to oil companies to keep rigs and crews working. The
average day rate for the sector's so-called ultra-deep-water rigs,
which drill at water depths around 5,000 feet and beyond, are now
at a four-year low at under $400,000 after peaking at almost
$600,000 a day about a year ago, according to IHS.
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