Petrobras firms up deals for Marlim 2 FPSO with Yinson

Malaysian FPSO provider Yinson has signed contracts with Petrobras for the delivery, operation, and maintenance of the Marlim 2 FPSO.

Illustration; Source: Petrobras

Yinson won two letters of intent from Petrobras in October 2019 for the charter and operation of the Marlim 2 FPSO for the Marlim revitalization project in Brazil.

The company said at the time that the estimated aggregate value of the contracts was equivalent to $5.4 billion. The contract period is for 25 years from the date of the final acceptance.

FPSO Marlim 2 will be Yinson’s first vessel to operate in Brazilian waters.

Yinson said last week that its subsidiaries Yinson Production Pte Ltd, Yinson Boronia Production B.V., and Yinson Boronia Serviços de Operação Ltda, had now entered into definitive contracts with Petrobras for the Marlim 2, under the same terms as stated in the letters of intent from October 2019.

According to the FPSO provider, the date of final acceptance under the contracts is expected in the first quarter of 2023.

On Monday, Yinson added that there would be no extension of the term of the charter under the contracts.

As for the FPSO, Marlim 2 will be installed some 150 kilometers off the Brazilian coast, in a water depth of 930 meters. It will have the capacity to process up to 70,000 bpd of oil and 4 million cbm of natural gas.

Also worth noting, Yinson and Sumitomo Corporation announced their intention to collaborate on the Marlim revitalization project back in March 2019 in the event of a successful bid by Yinson.

The other FPSO for the Marlim revitalization project is the Marlim 1. Japan’s MODEC received a letter of intent for the supply, charter, and operations of an FPSO vessel for the project from Petrobras back in October 2019. First oil from Marlim 1 is planned for 2022.

Marlim 1 will be MODEC’s 16th project for Petrobras and will be chartered for 25 years. The 15th FPSO order for MODEC from Petrobras was for Búzios 5 field. It was ordered back in June 2019.

Offshore Energy Today staff


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Coronavirus spread pushes Bahamas well drilling to October

London-listed oil company Bahamas Petroleum Company (BPC) has further pushed back the drilling of its first exploration well in The Bahamas, the Perseverance #1.


BPC said on Wednesday that the delay was a result of the “massive, unprecedented, and adverse impact of the spread of the COVID-19 virus.”

According to the company, drilling operations planned for the May/June 2020 timeframe can no longer be assured and are rescheduled to October 2020 onwards.

Cost-effective drilling can best be delivered by ensuring continuous operations throughout the entire period of the 45 – 60 day drill plan uninterrupted.

National and regional shutdowns are impacting the ability of drilling rigs and other mission-critical equipment to get properly prepared and certified for drilling due to travel bans and border closures. Also, The Bahamas declared a state of emergency with a curfew in place on March 17.

This is further compounded given the need to take into account the timing of the traditional hurricane season in The Bahamas which happens between July and mid-October.

“The Board has thus concluded that if the company was to continue to seek to commence drilling in the first half of 2020, there would be an unacceptable level of risk to the company’s ability to operate continuously, responsibly, safely, and within currently established guidelines, timelines and, as a consequence, budgets.

“Accordingly, the company has determined to postpone drilling operations until mid-October 2020 onwards, being after the expected peak in the COVID-19 response, and also after the peak risk period for hurricanes in The Bahamas,” BPC stated.

BPC added that the impact of the response to the spread of the coronavirus, both globally and in The Bahamas, also constituted a force majeure event under the terms of the company’s licenses. Due to that fact, BPC expects to receive a corresponding extension to the current term of the licenses from the Government of The Bahamas.

Simon Potter, CEO of BPC, said: “Given the ever-evolving adverse impact of the response to the spread of the Covid-19 virus – which is changing daily and is affecting everyone and all enterprises, around the globe – it has become clear to us that if we continue to push forward with drilling in the first half of 2020, safe and responsible operations would be compromised.

“Shareholders should be encouraged, however, that we are in a strong position to resume drilling activities toward the end of 2020, compared to where we were just a year ago. The company has cash reserves, and financial backers intent on flexibly supporting the company.

“We also have an approved environmental authorization from the Government of The Bahamas, farm-in discussions remain on foot, and the current crisis is presenting a number of interesting alternative opportunities for us.

“The spread of the Covid-19 virus represents a global threat to our collective way of life, and we all have to face reality over the coming months – which in the case of our company means pausing our drilling plans for a time, as hard as that may be. We hope that all of our shareholders, stakeholders, employees, and contractors take care, and stay safe and well in this extremely difficult time for all.”

No change in cost estimate

BPC said that the cost estimate for the Perseverance #1 well was in the range of $25 – $30 million, with potential contingencies for up to an extra $5 million. The company does not anticipate the cost estimate to change due to the rescheduled start of operations.

All previously agreed financial elements would see total funding availability of around $45 million, and issuance of approximately 1.6 to 1.8 billion new shares of BPC.

As a result of the global COVID-19 crisis, a large number of international drilling programs were canceled or postponed, and a large number of rig contractors are revisiting their work programs.

This is expected to have knock-on effects on rig availability and potentially lower rig pricing in the revised drilling window. BPC is already revisiting discussions with a range of contractors for securing a suitable drilling rig for the revised drilling window.

Furthermore, the company will continue to assess options for a farm-out or similar transaction in the coming months, and stated that a number of interested parties, including oil and gas majors and supermajors, have indicated that they would wish for discussions to continue regardless of the coronavirus global crisis and the recent decline in global oil prices.

BPC is also evaluating some potentially value-creating alternative strategic options presented to the company in light of the global COVID-19 crisis.


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Prosafe to claim full contract value after EnQuest cancels rig mobilization

Following EnQuest’s cancellation of mobilization of the Prosafe-owned Safe Zephyrus accommodation rig in the North Sea, Prosafe has said it will claim the full value of the contract. 

Safe Zephyrus; Source: Prosafe

Prosafe on Monday provided an update on its ongoing operations and contracts in light of COVID-19 and the oil price crash.

According to the update, the Safe Concordia flotel is on location and dayrate, although client personnel has been demobilized. The Safe Concordia is under a contract with Equinor in Brazil.

Further, both Safe Notos and Safe Eurus flotels have been disconnected and client personnel demobilized. Both accommodation rigs are on a 95% stand-by dayrate.

The Safe Notos has been operating on a three-year and 222-day contract for Petrobras in Brazil since December 7, 2016.

The Safe Eurus is also under a contract with the Brazilian Petrobras. Awarded in May 2019, the three-year firm contract started in 4Q 2019.

Finally, the Safe Zephyrus rig was ready to mobilize from Averøy in Norway to support the Thistle project for a 21-day firm period, but was instructed by client on March 20 not to mobilize.

Prosafe said it would claim full contract value, ca. $2 million.

To remind, Prosafe was earlier in March awarded a contract to provide accommodation in support of EnQuest’s redundant subsea tank removal and safe re-habitation of the Thistle Alpha platform in the UK North Sea.

However, as the situation with the coronavirus as well as the oil price crash developed, EnQuest said last week it would not re-start production at the Heather and Thistle/Deveron fields.

Namely, as a response to the current market situation, EnQuest decided to reduce its costs. For 2020, the company is targeting base operating expenditure savings of c.$150 million, which would lower operating costs by c.30% to c.$375 million.

Offshore Energy Today Staff


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Husky defers two offshore projects after taking an ax to capital spending

Canadian oil and gas company Husky Energy has decided to cut its 2020 capital spending by $900 million in upstream spending and an additional $100 million in additional measures. 

Illustration. Source: Husky Energy

Under the new plan, Husky has decided to delay the development of an oilfield located offshore China as well as development of a natural gas field offshore Indonesia.

Husky said on Thursday it is taking a series of actions to fortify its business in response to challenging global market conditions.

With these initiatives Husky is looking maintain the strength of its balance sheet while protecting value in an extended low commodity price environment.

“Husky has three important advantages: a strong balance sheet, an Integrated Corridor which includes a sizeable downstream and midstream segment, and Offshore operations that include long-term gas contracts in the Asia Pacific region not linked to the price of oil,” said CEO Rob Peabody.

Given current market conditions, Husky will start the reduction, or shut-in, of production where it is cash negative on a variable cost basis at current prices.

The company’s total liquidity is $4.9 billion, comprised of $1.4 billion in cash and $3.5 billion in unused credit facilities. In line with its committed credit facilities, Husky is required to maintain debt to capital of no more than 65%, and is well below this threshold with a ratio of 27% with no long-term debt maturities until 2022.

The company has revised its capital investment guidance in Upstream from $2.6 billion – $2.8 billion to $1.75 billion – $1.9 billion.

The company’s total investment guidance was reduced from $3.2 billion – $3.4 billion to $2.3 billion – $2.5 billion.

Total Upstream Production (mboe/day) has been revised from 295 – 310 to to 275 – 300.

According to Husky, investment in resource plays and conventional heavy oil projects in Western Canada has been halted, with a focus on optimizing existing production and lowering costs. Furthermore, drilling of sustaining pads at all thermal operations has been suspended and Lloydminster thermal projects scheduled to be delivered beyond 2020 have been deferred and will be reconsidered as market conditions improve.

In the Asia Pacific region, the development of the Block 15/33 oil field offshore China has been deferred by a year. In Indonesia, development of the MDA-MBH natural gas field has been deferred.

The Liuhua 29-1 field at the Liwan Gas Project is being advanced as planned, with first production expected by the end of 2020.

The company said it continues to review further capital adjustments in response to the current market environment.

Additional cost reduction initiatives totalling approximately $100 million in 2020 will include a reduction in well servicing activities on uneconomic production, and a halt in exploration activity.


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Rystad: With OPEC+ ready to unleash extra barrels, oil prices could fall into low $20s

Oil prices could fall into the low $20s for the global market to rebalance, as Rystad Energy expects an increase in global supplies in the next three months. OPEC+ countries are locked and loaded to add between 1.5 million and 2.5 million barrels per day (bpd), which Rystad estimates is their realistic short-term capability.

Illustration. Author: SP Mac

After the breakdown in OPEC+ negotiations and subsequent oil price free-fall, Saudi Arabia and the UAE have both signaled their intention to flood the market with additional oil production starting next month, Rystad said in a report released on Wednesday.

“Without OPEC+, the global oil market has lost its regulator and now only market mechanisms can dictate the balance between supply and demand,” said Espen Erlingsen, Rystad Energy’s Head of Upstream Research.

Rystad Energy estimates that global liquids demand was reduced by around 4 million bpd in February, primarily driven by the coronavirus. Over the next months, demand might be weakened by between 2 million to 4 million bpd due to the virus, Rystad said.

The cost of supply curves can be a good barometer to gauge how the market will react to various scenarios, says Erlingsen. Rystad Energy has updated its estimates of the short-run marginal (SRM) cost for the global liquids market.

For conventional fields, the SRM only includes transportation costs, effects of gross taxes and price differentials to Brent. All other costs, such as production cost and investments, are excluded, as Rystad Energy believes that these costs will not affect production levels from producing fields in the short term.

For tight oil assets, producing wells include the same costs as conventional fields, while the drilled uncompleted wells (DUC wells) also include the costs for completing the wells. For not yet drilled tight oil wells, both drilling and completion costs are included.

The shape of this curve is rather flat, as the SRM for the majority of the oil fields is below $5 per barrel. In fact, around 92 million bpd of production has an SRM below $5 per barrel. Total production with an SRM cost above $15 per barrel is around 4 million bpd.

Rystad Energy estimates that the total demand for liquids will be around 100 million bpd in June 2020, assuming no coronavirus impact.

The cost of supply curve moves to the right if OPEC+ increases production. The equilibrium price moves from around $25 per barrel (no additional OPEC+ supply) to $19 per barrel in the modest 1.5 million bpd increase scenario and $14 per barrel in the large 2 million bpd increase scenario.

If demand weakens by 2 million bpd in June (total demand of 98 million bpd), the equilibrium oil price moves from around $19 per barrel to around $11 per barrel in the modest OPEC+ increase scenario. If demand weakens by 4 million bpd in June (total demand of 96 million bpd), the equilibrium oil price moves down to around $9 per barrel in the modest OPEC+ increase scenario.


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Talos cancels analyst and investor event over coronavirus fears

Houston-based oil and gas company Talos Energy has decided to cancel its analyst and investor event, which was set to be held later this week in New York, over coronavirus fears. 

Illustration. Source: Talos

Talos announced on Monday that it was cancelling its Analyst and Investor Event previously scheduled for March 12, 2020, in New York City due to health and safety concerns for the potential spread of COVID-19 and the associated state of emergency declaration in New York.

The company said it was evaluating potential alternative future dates for the event.

“At Talos, the health and safety of our employees, the communities we operate in and all of our stakeholders is paramount. We apologize for any inconvenience the postponement may cause, but believe it is the best and most prudent decision for everyone concerned,” Talos said.

Talos will hold its regularly-scheduled earnings conference call on Thursday, March 12, 2020 at 10:00 AM Eastern Time.

Talos is not the only company to take measures of precaution over the coronavirus outbreak. It is also worth reminding that Italy’s Saipem in late February advised its employees to stay at home. Saipem has also canceled and reduced to the minimum all missions to and from the risk areas abroad.

The coronavirus outbreak has had a negative impact on the global oil demand pushing OPEC to recommend even deeper oil production cuts after a meeting in Vienna last week.

However, as reported by Reuters last Friday, Russia refused to support deeper oil cuts to cope with the outbreak of coronavirus and OPEC responded by removing all limits on its own production.

As a result, CNN reported on Monday, oil prices suffered a historic collapse overnight after Saudi Arabia shocked the market by launching a price war against onetime ally Russia.

Offshore Energy Today Staff


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