GULF OF MEXICO
Low oil prices continue
to take toll on drilling
Downturn may offer opportunity
for more P&A work
Falling oil prices have negatively impacted drilling activity in the Gulf of Mexico for more than a year, but there have been some signs of improvement in recent months. With the April num- bers mostly in as of press time, marketed utilization in the US Gulf averaged about 71.5%, according to IHS Petrodata. This is
an increase over the 69.2% averaged in March and the 68.4% averaged
in February, but still below the 73.6% averaged in January. Looking
back to April 2015, marketed utilization in the region averaged 83.7%.
The improvement in marketed utilization stems from a decrease
in rig supply as a couple of units have moved out of the region,
notably three Transocean drillships that mobilized to Trinidad for
stacking, and two Rowan jackups, one of which was sold prior to its
departure, that left for work elsewhere.
Activity in the shallow-water GoM is at its lowest level since offshore drilling began in the late 1940s. In late March there were just
five shallow-water jackup rigs working in the US Gulf, two of which
belong to Hercules Offshore. A third Hercules rig is preparing to
start work in the region during the next several weeks. With little
certainty on commodity prices and cash flows, operators are hard-pressed to move forward with drilling programs. Many of these
have been deferred to late 2016 or 2017, or cancelled altogether.
There is still some activity in deepwater, but much of this is infield
or appraisal drilling; or P&A work.
“It is a very challenging deepwater market at the moment in the
US Gulf of Mexico,” says Michael Acuff, SVP Sales and Business
Development, Pacific Drilling. “Operators are diligently conserving
capital and focusing on reducing their long-term cost structure for
offshore projects.” The result of this, Acuff told Of fshore, is a lack of
new projects or deepwater exploration being sanctioned. “In some
cases,” he noted “there has been a reduction of deepwater drilling
activity as customers complete their current contracts or early terminate contracts for convenience.”
In terms of contracted backlog, “the US Gulf has definitely seen
better days,” says Cinnamon Odell, senior rig analyst with IHS Petrodata. This is particularly true of the jackup market, she told Of fshore. As of late April, only six jackups remained under contract, and
two of those were due to roll off charter in a couple of weeks.
By way of comparison, 10 years ago there were 80 jackups contracted in the region, and that number was 37 five years ago. “The
US Gulf used to be a major jackup player,” Odell said, representing
about 22% of the world’s contracted units in April 2006. That figure
dropped to just below 11% five years ago, and is now coming in at just
under 2%, she notes.
Currently there are no jackups in the region contracted beyond
the end of this year, and when considering only currently marketed units, only 9.5% of remaining days this year are booked. Even
though demand for new projects is expected to remain low for at
least the next couple of years, “this is a great opportunity for any
operators looking to pick up a jackup for any minor work needed to
keep their leases in good standing or for any plug and abandonment
work they may have been putting off due to high rig rental prices,”
as a number of units are available at very low rates, Odell observed.
Looking at the floating rig sector, marketed drillships in the US
Gulf have already been secured for about 87% of the days left this
year and about 67% of next year. “However, the semi market is not
nearly so tight,” Odell noted. About 55% of the days remaining this
year are booked for marketed units, and only 27% of days are secured going into next year.
Complicating matters is the topic of sublet availability. While a
large number of floating rigs are under contract, many of the operators that leased them are ready and willing to sublet them to another
operator, should the opportunity arise. “This makes it extra challenging for rig contractors to secure new assignments in an already
tough market with weak demand,” Odell observed.
Meanwhile, the number of drilling permits seems to be holding
steady ground in recent months, although the numbers are down
US Gulf of Mexico current backlog
as a percentage of available supply.
Rig type Total current backlog 2016 2017
Drillship 1,350.1 87.3 66. 7
Jackup 13. 9 9. 5 0.0
Semisubmersible 119.3 55. 2 26. 9
“Available” excludes non-marketed rigs and units that are not immediately ready to go
to work, for example because they are in the yard. “Current backlog” is defined as future
contract commitments, as of April 25, 2016, expressed in rig months.
Source: IHS Petrodata
Ensco says that its ENSCO 8505, retrofitted with enhanced mooring
capacity, is currently working under a contract for Marubeni Corp. that
will run until 2018. (Photo courtesy Ensco)