Transocean, Noble drilling pacts terminated early

Oil and gas rigs owned by Transocean Ltd sitting idle in the Grand Harbour in Valletta, Malta. Transocean's Discoverer Americas oil rig is facing the same fate as its lease has been cancelled because there is not enough work for it.
Oil and gas rigs owned by Transocean Ltd sitting idle in the Grand Harbour in Valletta, Malta. Transocean's Discoverer Americas oil rig is facing the same fate as its lease has been cancelled because there is not enough work for it.PHOTO: REUTERS

Glut of new vessels, spending cuts by oil explorers deal double blow to rig-owners

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

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

Statoil said on Thursday it cancelled the lease for Transocean's Discoverer Americas ultra-deep-water rig because there was not enough work for it.

The rig, which is capable of drilling in water as deep as 3,700m, was earning a day rate of US$590,000 (S$830,000). Its scheduled expiration was May.

Royal Dutch Shell cancelled the lease for the Noble Discoverer rig a year ahead of its contract ending. The rig, which works in water as deep as 300m, was earning US$369,000 a day, the London-based rig contractor said on Thursday in its fleet status report.

"The outlook for the offshore drilling industry looks far tougher than when the year started," Mr Jud Bailey, an analyst at Wells Fargo, wrote on 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.

Oil traded near US$35 a barrel and headed for a third weekly decline amid a worsening US supply glut and the first interest rate increase by the Federal Reserve in almost a decade.

US benchmark West Texas Intermediate for January delivery was at US$34.97 a barrel on the New York Mercantile Exchange.

Noble, which will move its rig to Singapore to park it for an extended period, will receive 90 per cent of the adjusted operating day rate 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 on Thursday.

"Discoverer Americas has been a very good performer for Statoil," Mr Tore Aarreberg, head of rig procurement at Norwegian oil giant 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."

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A version of this article appeared in the print edition of The Straits Times on December 19, 2015, with the headline 'Transocean, Noble drilling pacts terminated early'. Print Edition | Subscribe