Transocean Ltd., the world’s biggest offshore oil operator and the onetime owner of the notorious Deepwater Horizon drilling platform, is scrapping six offshore drilling rigs and acknowledging a business loss of US$1.4 billion.
The decision “signals just how bleak the future looks for deepwater drilling,” Bloomberg reports. “Competitors are going the same route, jettisoning more rigs in the third quarter than have ever been trashed in a 90-day stretch.”
With world oil prices in the US$50 per barrel range and not expected to much exceed $60 over the next year, “Deepwater is going to be playing a much-reduced role on the global oil supply stage relative to what the industry expected as recently as three years ago,” FBR Capital Markets analyst Thomas Curran told the U.S. news agency.
Transocean had tried to hold off the inevitable with a new technique called cold-stacking, described by Bloomberg as an “unprecedented experiment”. After oil prices crashed in 2014, “the company didn’t send all of its unwanted rigs out to sea in the time-honoured temporary holding pattern, where engines keep running and a crew remains on board—something know as warm stacking, naturally, that runs up a daily bill of some $40,000,” writes energy reporter David Wethe. “Instead, Transocean dropped anchor on nine high-tech ships 12 miles off the coast of Trinidad & Tobago and simply shut the motors off. So far, the savings are in the neighbourhood of $90 million.”
But that was only enough to postpone, not prevent the reality that future world oil prices won’t likely justify extreme oil drilling in deepwater locations. “This has been a very painful process” for Transocean said Credit Suisse analyst Greg Lewis. Cold-stacking the (apparently) famous Pathfinder offshore rig cost the company a mere $5 million per year, which meant that “you’re basically paying for a call option on a recovery in the market.”
“It’s very hard to ignore the sunk cost, but you have to,” said former Pacific Drilling SA CEO Chris Beckett. “Compared to the cost of having to buy or build a new one, the option cost of keeping it in a condition that you can reactivate it for a sensible price is relatively inexpensive.”
But meanwhile, “seven other Transocean offshore rigs continue to bob in the Caribbean,” Bloomberg notes. “Most if not all of them may never drill again.” Unfortunately for Transocean, “the older the rig, and the longer it’s parked, the more likely it will get passed up by customers for more capable competitors.”