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Oil’s Biggest Rigs Head to the Junkyard

Unread postPosted: Wed 18 Oct 2017, 22:22:24
by AdamB

Transocean Ltd. is finally sending Pathfinder to its grave, after two years in a Caribbean purgatory that cost about $15,000 a day. The move by the world’s biggest offshore-rig operator signals just how bleak the future looks for deepwater drilling. Pathfinder is the most famous of six floating rigs the company is scrapping in burials that will add up to a bruising $1.4 billion write-off. Competitors are going the same route, jettisoning more rigs in the third quarter than have ever been trashed in a 90-day stretch, according to Heikkinen Energy Advisors analyst David Smith. That’s how bad it is, with predictions crude prices won’t go much higher than $60 a barrel in the next year compared with around $50 recently. “Deepwater is going to be playing a much-reduced role on the global oil-supply stage relative to what the industry expected as ...

Oil's Biggest Rigs Head to the Junkyard

Re: Oil’s Biggest Rigs Head to the Junkyard

Unread postPosted: Thu 19 Oct 2017, 08:50:53
by Tanada
If the 'experts' are correct deep water is uncompetitive until after fracked shale beds peak out. On the other hand the EIA projected in 2013 that USA shale beds would peak out between 2018 and 2022. Now most of us know drilling and completion of fracked wells dropped to extreme lows in 4Q2015-3Q2016, but they also hit new highs in early 2015 and for the last four quarters in end 2016 and 2017 to date drilling and completion of shale beds has been picking back up. Right now we are drilling and completing somewhere over 50% of the early 2015 rates or about 70% of the 2013 rates when fracking was projected to peak out in 2018-2022. So IMO if the slow down in fracking caused by the price slump of 2015-2016 is already substantially reversing it seems reasonable that Fracking still has a peaking date delayed by a handful of years say 2023-2027. If fracking makes deep water uncompetitive then the big companies were looking at another 5-10 years of low demand for their rigs like Pathfinder, which is a lot of money invested in maintanence and crew training for that same period with little to show for it. On the other hand the USA government rewards companies that scrap "write off" equipment with substantial tax breaks or even capital loss tax maneuvers. By scrapping these rigs now they get a double boon, tax rebate on the one hand and eliminated cost on the other. Presuming deep water drilling picks back up circa 2025 or later they will be able to finance brand new rigs with whatever technology is then current for future exploration. I am sure in corporate board rooms it was presented as a win-win-win situation to scrap now rebuild later.

Re: Oil’s Biggest Rigs Head to the Junkyard

Unread postPosted: Thu 19 Oct 2017, 08:55:15
by GHung
" I am sure in corporate board rooms it was presented as a win-win-win situation to scrap now rebuild later."

Which assumes that the economy will stay on course and the capital will be available. If not.......

Re: Oil’s Biggest Rigs Head to the Junkyard

Unread postPosted: Thu 19 Oct 2017, 09:12:59
by rockdoc123
as the article states the decision to scrap versus continue with a "dry stack" is an economic one. Even with a "dry stack" the day costs are enormous and if you own the rig and don't see any business coming your way for the next 2 years then it is a decision you make in order to preserve current cashflow. Not only that but it remains to be seen how well "dry stack" works on deepwater rigs. The normal method as the article mentions is to "wet stack" where the rig is left standing offshore with a skeleton crew that regularly runs various rotating equipment in order to keep it in shape for deployment. Any time a land rig has been stacked for a length of time it takes months to get it back into safe operable conditions usually requiring a lot of equipment replacement. My guess is that after the deepwater rigs have been dry stacked for more than a year the cost to get them up a running efficiently will be quite large. ON the other hand, if the industry comes around a new rig could be commissioned in probably less than 2 years time working from scratch (Rockman may have better information on that) and the owner could pay out the investment to build in likely a few deep wells. I think most people would be amazed at how much maintenance has to be done on offshore rigs just to keep them running safely and that effort increases as the rig ages. There is only so much the chippers and painters can do, eventually, various parts of the rig need replacing and that is not cheap. I have an acquaintance who was trying to make a go over the last couple of years of buying up offshore rigs (mostly jackups but at least one semi-sub) because they were so cheap with the thought of depolying them as the price came back. Turns out that wasn't such a good investment decision given the protracted nature of lower oil prices over the past 3 years.