Major offshore rig contracts canceled

Allison Tonkin | | Uncategorized. Bookmark the permalink.

Two major offshore drilling rig contracts went by the wayside in the last week, and more cancellations are on the horizon.

The Netherlands-based Royal Dutch Shell PLC (NSYE: RDS.A) nixed its contract with London-based Noble Corp. (NYSE: NE) for the latter’s Discoverer rig in Alaska. Shell had entered into a three-year agreement for the Noble Discoverer rig in February 2014.

gulf rig

Four companies with a Houston presence were involved in recent rig contract cancellations. BOMBOMAN

Last week, Norway-based Statoil ASA (NYSE: STO) cancelled its drillship contract with Switzerland-based Transocean Ltd. (NYSE: RIG).

All four companies have a major presence in Houston.

Statoil’s and Shell’s contract cancellations were situational and largely anticipated, said Leslie Cook, senior research consultant in deepwater drilling at Houston-based Quest Offshore Resources.

“The Discoverer is the Alaska rig, and Shell isn’t going back to Alaska. It has barely been used. Shell has absolutely no need for that rig,” said Cook, adding that Noble in all likelihood knew it was coming.

It was a similar situation for Statoil and Transocean, said Cook.

“That’s pretty situational — that should not have been a surprise,” said Cook. “Unless they were going to be able to sublease that rig, which is difficult to do, anyone who followed Statoil could have guessed that was coming.”

There are likely more contract dumps on the horizon, said Cook.

“Shell did say at the end of this particular quarter that they were going to reduce their rig count by about half in 2016,” said Cook. “For Noble, Shell is their key client. Eight of their 14 contracts right now are with Shell.”

Cook cited Noble’s Clyde Boudreaux rig off the coast of Australia and its Jim Day rig in the Gulf of Mexico, both operated by Shell, as potential chopping block contenders.

As for Statoil, between the job cuts at its Houston office and the company’s well off the coast of Norway that was declared dry in October — a rollback of activity in 2016 is expected.

Suzanne Edwards covers energy for the Houston Business Journal. Follow her on Twitter for more.

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