Ocean Onyx, an offshore drilling rig owned by Houston’s Diamond Offshore Drilling, left Singapore on March 14 and headed for the waters off the southern coast of Australia.
As the vessel was en route, the coronavirus virus continued to spread around the world, shutting down economies, forcing people to stay home and crippling commercial air travel. Worldwide demand for oil slowed to a trickle.
It wasn’t long after Diamond Offshore delivered the Ocean Onyx to its client, Beach Energy, on April 14, that the Australian oil producer used a contractual loophole to extricate itself from a $65 million contract with Diamond. The world then had become awash in unneeded oil and by April 20, the price of crude in Texas plunged to negative-$37 a barrel.
Diamond Offshore, however, had spent more than $100 million preparing and transporting the rig. On April 26, the company, which employed 2,500 workers, filed for Chapter 11 bankruptcy and laid off 102 workers.
To be sure, Diamond was struggling before the contract was canceled. The company lost more than $800 million in the first quarter of 2020.
“Given the severe downturn in hydrocarbon prices, many companies are hanging on by their fingernails,” said Mike O’Leary, a partner at law firm Hunton Andrews Kurth in Houston. “When it comes to bankruptcies, we’re seeing the tip of the iceberg at this point.”
The offshore oil sector, still rebounding from the 2014-16 oil bust, is again fighting for survival — this time from the coronavirus pandemic’s economic fallout. Many rig operators are laying off workers as offshore energy companies cut short drilling contracts and look for ways to restructure amid mounting financial pressure.
“Offshore is getting hit really, really hard,” said Matthew Fitzsimmons, vice president of cost analysis for Norwegian research firm Rystad Energy. “It’s looking like investments will take a while to rebound.”
Uncharted waters: Impact of Deepwater Horizon on BP, offshore industry still playing out
The crisis hits an industry that was enjoying something of a renaissance in the months before the collapse. Offshore spending was expected to increase by 5 percent in 2020, Rystad said last year. Ultra-deepwater drilling and massive new projects by Chevron and BP were expected to boost record production in the Gulf of Mexico. And around the world, Exxon and Hess were having success off the coast of Guyana, while Halliburton had won contracts to drill off the coast of Senegal.
Many offshore projects, however, need oil prices above $40 and even $50 a barrel to be profitable. Now with crude stalled just under $40, as it was last week, analysts say only the strongest, best-financed and most-efficient offshore companies will survive, again reshaping the industry into one that is smaller, leaner and that employs far fewer workers.
That’s bad news for Houston and the Gulf Coast, which hosts the vast majority of the 60,000 offshore workers nationally, according to the National Ocean Industries Association, a trade group representing 100 offshore companies. Houston is home to some of the largest offshore operations such as Schlumberger, Halliburton and Transocean.
“The cycle we’re in now is much more drastic than what anyone could have contemplated for the industry,” said Erik Milito, president of the association. “You’re not going to see a sustainable offshore industry if you’re at the $30 range.”
The crash has claimed several offshore companies, including Diamond Offshore and Hornbeck Offshore Services, which filed for bankruptcy protection in April and May, respectively.
Diamond, a Houston-based drilling contractor with significant operations in the Gulf of Mexico, said in court filings that demand for its contract drilling services plummeted as oil producers cut costs and idled offshore rigs. Hornbeck, a Louisiana-based oil-field services company that transports oil to shore from offshore rigs, said in its filings that the crash hindered its ability to make payments on $1 billion of long-term debt.
Other offshore players are expected to follow Diamond and Hornbeck into bankruptcy. Houston-based Fieldwood Energy, one of the largest independent exploration and production companies specializing in offshore drilling in the Gulf of Mexico, is reportedly preparing for its second Chapter 11 bankruptcy filing in two years.
‘Not for the faint of heart’
Offshore oil production, which generally requires massive upfront capital and a decadeslong return on investment, has been slow to recover from past downturns.
A typical offshore well can cost $3 billion to $5 billion to drill, and can take five to 10 years from exploration to production. But they can reliably produce oil for at least 20 years.
Given the time and money required to deploy them, energy companies tend to take a more cautious approach to offshore drilling — especially when it’s impossible to know what the price of oil will be when crude starts flowing years later.
“It’s a nerve-wracking business,” said O’Leary, a Houston attorney specializing in the energy sector. “This business is not for the faint of heart.”
Pandemic strikes: Several BP offshore workers test positive for coronavirus
Offshore energy companies tend to respond relatively quickly to oil crashes, idling rigs and laying off workers. But they are deliberately slower to bring them back as the price of oil rebounds.
Spending this year on offshore projects is expected to plunge by 80 percent to $20 billion from $104 billion in 2019 commitments, according to Rystad. At the worst of the 2014-16 oil bust, offshore spending dropped to $38 billion.
The sharp spending decline means fewer operating rigs and fewer jobs. The number of working offshore rigs declined in June to 448, off 34 percent from the high of 683 in 2014, and about 70 fewer than the IHS Markit 2020 forecast average of 521. Meanwhile the number of offshore jobs in the Gulf of Mexico, which grew to almost 70,000 last year will decline by 13 percent to about 60,000 this year, the National Ocean Industries Association said.
The number of workers in the offshore segment declined by 22 percent during the 2014-16 oil bust — half of the decline seen in onshore shale, according to Rystad. But shale production, which requires less upfront capital and short drilling cycles, was able to rebound more quickly, bring back most of the jobs it lost during the downturn. Offshore didn’t bring as many jobs back, Fitzsimmons said.
Next wave: Big Oil shows new commitments to offshore African projects
With the coronavirus pandemic, getting workers back into the office to work on new offshore projects will be difficult and likely further delay the recovery, Fitzsimmons said.
“Having a project team of 400 engineers all spread out and working from home, it’s another challenge,” he said. “You need people in offices to design these big projects. So it’s best, if you’re investing billions of dollars, to wait out the pandemic. The reserves will still be there.”
Putting operations on hold
Meanwhile, energy companies are busy idling and mothballing offshore rigs, known in the industry as “warm-stacking” and “cold-stacking” rigs, respectively.
Warm-stacked rigs have a limited crew on board to keep some machinery running, while cold-stacked rigs may be vacated and production suspended. Most companies are warm-stacking their rigs in hopes that prices will recover more quickly than expected.
Houston-based Seadrill, for example, decided to mothball a drilling rig in the Gulf of Mexico for up to three months after a drilling contract ended, forcing the company to lay off its 135 idled workers.
Such layoffs, said Rystad’s Fitzsimmons, could spell more trouble for offshore companies when things turn around.
“The talent and experience drain is going to happen again,” Fitzsimmons said. “That’s going to delay the restart because the people just aren’t going to be here. It’s a long ripple effect in a long cycle.”
paul.takahashi@chron.com
twitter.com/paultakahashi
"oil" - Google News
June 22, 2020 at 11:13PM
https://ift.tt/3fO3ilm
‘Not for the faint of heart’: Oil bust lashes offshore industry still in recovery - Houston Chronicle
"oil" - Google News
https://ift.tt/2PqPpxF
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
Bagikan Berita Ini
0 Response to "‘Not for the faint of heart’: Oil bust lashes offshore industry still in recovery - Houston Chronicle"
Post a Comment