Offshore oil rig owners seen near 'panic' as contracts cut early

An oil platform sits under repair in Guanabara Bay in Rio de Janeiro, Brazil, on Feb 25, 2014.
An oil platform sits under repair in Guanabara Bay in Rio de Janeiro, Brazil, on Feb 25, 2014. PHOTO: BLOOMBERG

HOUSTON (BLOOMBERG) - The outlook for offshore rig owners just got a little more gloomy as oil explorers end more contracts for drilling vessels to save much-needed cash during the worst market crash in a generation.

Transocean Ltd and Noble Corp, two of the world's largest offshore rig contractors, each reported early termination of drilling pacts for their vessels floating in the US Gulf of Mexico.

Statoil said Thursday (Dec 17) it canceled the lease for Transocean's Discover Americas ultra-deepwater rig because there wasn't enough work for it. The rig, which is capable of drilling in water as deep as 12,000 feet, was earning a dayrate of US$590,000 until its scheduled expiration in May.

Royal Dutch Shell canceled the lease for the Noble Discoverer rig a year ahead of its contract ending. The Noble rig, which works in water as deep as 1,000 feet, was earning US$369,000 a day, the London-based rig contractor said Thursday in its latest fleet status report.

"The outlook for the offshore drilling industry looks far tougher than when the year started," Jud Bailey, an analyst at Wells Fargo, wrote Wednesday in a note to investors titled, 'Moving a Little Closer to the Panic Button.'

Offshore rig owners around the world are suffering from the double whammy of a glut of new vessels entering the market at the same time as falling crude prices force oil explorers to cut spending. Crude prices are down by more than half since last year.

Noble Corp, which will move its rig to Singapore to park it for an extended period, will receive 90 per cent of the adjusted operating dayrate for the rest of the term.

Transocean's Discoverer Americas rig will receive an early termination payment "fully compensating the company as provided for in the contract," according to a statement Thursday.

"Discoverer Americas has been a very good performer for Statoil," Tore Aarreberg, head of rig procurement at Statoil, said in a separate statement on the company's website. "Without additional activity lined up, we unfortunately have to let the rig go prior to contract end."