Offshore in depth

During my early career as a service company product manager, I travelled so much that my young sons were convinced that I worked for the CIA, especially after a long trip to Germany that coincided with the fall of the Berlin Wall. At the time, my job did involve gathering intelligence—not on geopolitics, but on the oil and gas industry—just as my role as a World Oil columnist calls for drawing conclusions from seemingly disconnected information. This month, the “satellite pictures” of the offshore industry present a mixed message, showing signs of serious distress, as well as the determination to be ready when oil prices recover.

Parked rigs. My spy satellite noticed something unusual in the Cromarty Firth, Scotland. The port’s normal activity of maintaining and upgrading rigs has ground to a halt, and now more than a dozen rigs are parked in the harbor, half hot-stacked and the other half cold-stacked. The Financial Times reported that only one of the rigs was preparing to go on contract, and that two rigs had already been towed to Turkey to be scrapped. It was reported that the Cromarty Firth Port Authority had invested in a new quay, where North Sea platforms could be dismantled. For now, decommissioning appears to be the biggest opportunity in the North Sea.

On another pass, the satellite camera zooms in on Port Fourchon, La., where rows of jackups are parked, along with numerous service vessels and workboats. Travelling over the Gulf of Mexico and the Caribbean, the satellite detects a dozen hot-stacked drillships, anchored offshore. Their owners are competing for contracts, or holding out a while longer before sailing to the scrap yard.

This reconnaissance is consistent with trends in the rig market. During 2015, floating rig utilization fell from 69.3% to 55.9%, with 201 out of 359 rigs contracted at the end of the year, according to RigLogix. The average contract fixture day rate fell 32.5% in 2015, from $392,417 to $264,571 per day. Last year’s jackup market also declined, with utilization dropping from 75.1% to 62.1%, with 396 out of 527 rigs employed. Average day rates for jackups fell 20% year-to-year, from $122,167 to $98,016.

Rystad Energy reported 45 retirements in 2015, including 24 floaters and 21 jackups. The average retirement age in 2015 was 33 years, 32 for floaters and 35 for jackups. Many more retirements will be required to bring balance to supply and demand.

Stressed shipyards. The spy satellite observed many floating rigs under construction at the large South Korean shipyards. While the industry is suffering a glut of offshore rigs, RigLogix reports that 103 new rigs (76 jackups, 14 drillships and 13 semis) are scheduled to be delivered in 2016, with many more scheduled for subsequent years. Contractors have delayed delivery of new rigs, and others have cancelled orders for floaters.

Jackup builders in China and Singapore are facing similar pressures. Depending on contract terms, shipyards may be left with new, unwanted rigs on their hands. In January, South Korea’s Yonhap News Agency reported that the country’s three major shipyards (Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries) had combined losses of $6.1 billion in 2015, because of weakened demand for deepwater rigs and production facilities.

Some relief may be in sight for these big shipyards, as Shell, Eni, Chevron and Petronas are expected to revive postponed projects for floating production facilities in Nigeria, Mozambique, Thailand and Malaysia. Qatar-based Gulf Drilling International recently placed an order for two jackups from Singapore’s Keppel, following the January delivery of the fifth rig of a prior order for similar units.

Perdido Foldbelt. Back in the Gulf of Mexico, Seadrill’s West Pegasus semisubmersible was spotted drilling in Mexican waters just 10 mi from Shell’s Perdido field, and two mi south of the international boundary. As 2016 began, the rig, positioned in 8,179 ft of water, had drilled the Tiaras-1 below 10,000 ft, en route to a proposed TD of around 16,000 ft to a potential Lower Tertiary reservoir. Pemex has three other deepwater rigs under contract to explore the southern portion of the Perdido Foldbelt, and Shell has two wells drilling on the U.S. side. Strong results from Tiaras-1 would be good news for Stone Energy, which has planned an exploratory well at the Lamprey prospect in Alaminos Canyon 943, which is just four miles north of the Pemex well.

A significant discovery on Tiaras-1 likely will increase interest in Phase 4 of Mexico’s Round 1 lease auction, which will offer at least 10 blocks in the Perdido Foldbelt area. Fourteen experienced deepwater operators have been qualified to participate in this auction. In September, Pemex sold three shallow-water blocks in the Bay of Campeche, in Round 1, Phase 2. Eni International B.V. outbid Lukoil for an area that included three proven fields, with favorable terms for the Mexican government. A consortium of local companies, including BP, bought a second block, and Houston-based Fieldwood Energy, and its partner, Petrobal, purchased the third block. Fieldwood is one of the largest operators in shallow waters of the Gulf of Mexico.

Hebron forges ahead. Finally, my satellite passed over the Bull Arm Site in Newfoundland and Labrador (NL), where work continues on the Hebron gravity-based platform, which will sit in 93 m of water, 253 km southeast of St. John’s, between Hibernia, White Rose and Terra Nova fields. The giant, concrete, gravity-based structure is under construction in a drained inlet at Bull Arm, and will eventually be 120 m tall, with the capacity to store 1.2 MMbbl of heavy oil. Topside modules are being produced in NL and in South Korea. Exxon Mobil, Hebron’s operator, recently reaffirmed that it is committed to producing first oil from Hebron’s 700-MMbbl reservoir in 2017.

About the Authors

Ron Bitto

Contributing Editor

Ron Bitto has more than 30 years of experience as a technology marketer and writer in the upstream oil and gas industry. RON.BITTO@GMAIL.COM