• 3 hours Keystone Pipeline Restart Still Unknown
  • 7 hours UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 9 hours Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 11 hours Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 13 hours German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 14 hours Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 16 hours Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 1 day Oil Prices Rise After API Reports Major Crude Draw
  • 1 day Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 1 day Gazprom Speaks Out Against OPEC Production Cut Extension
  • 1 day Statoil Looks To Lighter Oil To Boost Profitability
  • 2 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 2 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 2 days Whitefish Energy Suspends Work In Puerto Rico
  • 2 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 2 days Thanksgiving Gas Prices At 3-Year High
  • 2 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 3 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 3 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 3 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 3 days ConocoPhillips Sets Price Ceiling For New Projects
  • 5 days Shell Oil Trading Head Steps Down After 29 Years
  • 5 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 6 days Venezuela Officially In Default
  • 6 days Iran Prepares To Export LNG To Boost Trade Relations
  • 6 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 6 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 6 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 6 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 7 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 7 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 7 days Santos Admits It Rejected $7.2B Takeover Bid
  • 7 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 7 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry

Breaking News:

Keystone Pipeline Restart Still Unknown

Alt Text

Who's Next? Venezuela's Collapse Puts These Nations At Risk

While investors have been ignoring…

Alt Text

The Surprise Winners Of The Oil Price Rally

The recent rally in oil…

Alt Text

Don’t Back U.S. Shale To Keep Oil Prices Down

The common assumption that U.S.…

90% Off Sale On Offshore Drilling Rigs?

Offshore drilling rig

It might not be a great time to start offshore drilling, with oil prices as depressed as they are, but it might just be a great time to buy an offshore drilling rig for a cut-rate price—in fact, you might be able to get one for only one tenth of what they cost in 2011.

This is the cost coup recently pulled off by Ocean Rig, a company controlled by shipping billionaire George Economou, who has landed a drillship—the Cerrado—for only US$65 million at auction, which represents less than 10 percent of the estimated price when it was built over six years ago.

It’s only to be expected that the slump in oil and gas prices would spread to all parts of the industry, but until now, offshore drilling tended to get less specific attention. That may be changing. Related: Global Rig Count Continues To Fall

As Bloomberg notes, companies from this sector have accumulated $24 billion of distressed debt. The holders of this debt may be facing their own version of a subprime crisis: The Cerrado vessel is hardly the only asset that’s lost 90 percent of its value over the last couple of years.

As E&Ps focus on cost-cutting and efficiency improvements, offshore drilling contractors are being stripped of options. The industry’s largest player, Norwegian Seadrill, for example, also has the largest debt, with its debt to equity ratio at 118.80, which it just recently agreed to restructure partially.

Sector player Harkand has been less fortunate, and filed for administration earlier this month, unable to meet repayment obligations on a $230-million bond issued two years ago. Related: Turkey, At Energy Crossroads, Sliding Towards Authoritarianism

In financial performance, their peer Pacific Drilling reported a net loss of $2.5 million for the first quarter of 2016 and revenues of $205.4 million, down from $267 million in the previous quarter. Diamond Offshore Drilling and Helmerich & Payne, however, were both in the black in the period, despite some decline in revenues. In terms of performance, then, not all is lost. In terms of new business that would help maintain this performance, however, things don’t look so good. Basically, as pointed out in this analysis, offshore drillers need new business, and they are finding it hard to come by.

What makes things even harder for those operating in the U.S. are new regulations aimed at preventing a repeat of the 2010 Deepwater Horizon disaster that resulted in 11 deaths and a colossal environmental catastrophe in the Gulf of Mexico. In response, the Obama administration worked to put in place more stringent controls on offshore drilling.

These, however, were unwelcomed by the embattled oil industry. According to Exxon, the implementation of the new rules will cost $25 billion over the next 10 years. This might have been an acceptable sum a few years ago when oil was expensive, but now E&Ps are reluctant to spend anything more than the bare essentials. U.S. regulators insist the new rules will not cost as much as the industry says. Related: Oil Reverses As Stronger Dollar Offsets Canadian Concerns

Wood Mackenzie added to the pessimism by warning that exploration investments in the Gulf Coast will fall by as much as 70 percent as a result of the new legislation, with the loss of 190,000 jobs.

The Gulf Coast is, of course, not the whole world, but for international offshore drilling equipment and services suppliers it is a major revenue source that will shrink under the new legislation as E&Ps give up projects.

The value of assets is likely to fall further, making the debt situation in the industry even more precarious.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • Riley on May 10 2016 said:
    When equipment is in surplus, it is sold off at heavily discounted prices. Normal for any business.
  • bmac on May 11 2016 said:
    Rowan indicated that they looked at the drilling ship/rig in question and were not impressed as there was going to be a need to invest at least another 100 million into the ship to bring it up to the level of ships built in the last year or so which would need to be done since many of the newest ships are looking for work now. They commented that spending hundreds of millions on a ship, technology, upgrades and crewing for a rig that may go without a contract for years was not a good return on capital. They seemed to indicate that with the day rates on ships dropping so heavily compared to High Spec Jack ups in the North Sea, the indication was that they would likely look at spending fewer dollars on Jack ups that will have a better chance of getting work.
  • bm on May 11 2016 said:
    The ship that sold had older technology and specs compared to the newest drillships and since companies such as Petrobras and Freeport McMoran are trying to get out of contracts with newer ships, nobody with new ships wants to spends hundreds of millions on the ship, newer technology and keeping and training a crew for years if the boat may not get work for years. With competition from newer ships, this rig may never get a day rate that provides much upside.

    Its Ironic that you have shown a pic of a Jack up rig which the rig in question is a drillship. Drillships cost three times as much as the lattest High Spec Jack ups and Jack ups, at least in the North Sea, still get very good day rates. This is partly because drilling in shallow water is cheaper and makes much more sense with oil in the 30-50 dollar range.

    Most people don't realize that the equipment isn't half as important as the people working and making decisions on the rig. Just ask BP. So only a hack company is going to take a cheap rig with an unknown crew and place it in the US GOM or off Brazil where an accident could bankrupt their company. Nice reporting though.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News