Statoil Scuttles Ultra-deepwater Rig Contract; Pays $350mm To Back Away

Oil Pro ^ | 11/21/2014 | Joseph Triepke

[thackney]

Statoil announced this morning that effective today it is cancelling its contract for the Stena Carron, an ultra-deepwater drillship constructed in 2008. The Stena Carron was under contract to Statoil for a 3-year term, and is only about a half-a-year in. The 2.5 year contract cancellation will cost Statoil $350 million.

Statoil signed the contract for the Stena Carron back in March 2013, and was paying a dayrate of around $630,000 per day for the rig. The total contract value remaining was about $585mm for the rig, and ancillary costs mean the total spread cost here likely would have run Statoil around $1bn. So while paying $350 million to back away now seems like a huge cost, it will save the Norwegian NOC a healthy sum.

Statoil Is A Unique Animal, But Datapoint Shows The Extent Of Weakness In The Rig Market

Statoil has been right-sizing its drilling rig portfolio and has suspended the contracts for several other floaters already this year and cancelled one other contract on a technicality. Statoil's actions are not a sign that other operators will follow suit, nor are they directly tied to commodity prices - Statoil has idiosyncratic budget concerns that are largely behind this move.

However, the Stena Carron cancellation is important as it is the first cancellation of a high-spec ultra-deepwater rig that we have seen during the current soft patch in offshore drilling. Cancellations for midwater and 4-5th gen deepwater units are to be expected, but this cancellation is impacting the premium UDW segment, where utilization has largely been thought of as bulletproof. The fact that Statoil is cancelling the contract, dropping the rig, and not looking to share its contracted time with another operator shows that demand is softer than previously thought in the premium segment of the market. The dayrate on this contract was near the high-water mark this cycle, and show this cancellation tells us what direction Statoil sees rig market pricing heading.

Angola Pre-Salt Disappoints

Statoil decided to cancel the rig contract after fulfilling the work commitments in the Statoil-operated blocks 38 and 39 in the Kwanza basin offshore Angola. The first well results from the area have been disappointing, and despite seeing some prospectivity in the basin, Statoil has decided that more time is needed to evaluate the well results and develop new prospects before committing to further exploration and appraisal drilling.

The first two Statoil-operated wells in this pre-salt play, Dilolo and Jacaré, have been drilled safely and efficiently. These two wells also fulfil the drilling commitments on these two blocks. The Jacaré well in block 38 has now been plugged and abandoned. Statoil is participating in eight commitment wells across five blocks in the Kwanza basin. So far four wells have been completed and one well is ongoing in block 40 operated by Total.

[thackney]

Statoil has been testing Angola pre-salt potential in the Kwanza blocks by drilling the commitment wells in block 38 and 39.

Offshore Rig Day Rates
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[M Kehoe]

Good afternoon.

Could $75 bbl have anything to do with the cancellation?

5.56mm

[Fractal Trader]

I lost a bundle, percent-wise on HRT Participacoes a year or so ago. Everyone was convinced that the pre-salt features off Angola matched the profile of the Brazilian finds. I guess that drilling by analogy can be dangerous.

Of course, Petrobras is having problems getting oil out profitably from its pre-salt finds but, as I understand,
these wells are veritable gushers. Not so with Angola, at least to date.

[thackney]

Two days ago:

Statoil To Keep Up Exploration Spending Despite Falling Oil Prices
https://www.rigzone.com/news/oil_gas/a/135990/Statoil_To_Keep_Up_Exploration_Spending_Despite_Falling_Oil_Prices

Norwegian energy group Statoil ASA will keep exploration drilling high in 2015 and plans to approve a new project this year, even as oil prices trade at four-year lows, its field development chief for Norway said.

Statoil expects to give the final go ahead for a smaller, fast-track development before Christmas and sees three to five fast-track projects in coming years, with a further investment decision in 2015, Ivar Aasheim said on Wednesday.

With oil prices falling around 30 percent since June, oil companies are under pressure to curb investments and Statoil, one of the top spenders in recent years, has also been reining in capital spending, delaying many developments.

“Everything has a limit, so if the oil price goes down to $60 (per barrel) then it will be very difficult to get an investment decision for these projects,” Aasheim told Reuters on the sidelines of a conference.

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Lowering oil prices are certainly a factor

[minnesota_bound]

I wish I could throw away $350 million.
I suspect someone will lose their job.

[thackney]

I suspect such a decision is made by the CEO with the acceptance of the Board of Directors.

[Red Badger]

the Kwanza basin?........................I’ll send them a card...................