Rig utilization in Southeast Asia set for decline, Rystad’s analysis shows

Southeast Asia’s rig market, which was poised for growth in 2020, is now set for a decline. Several oil companies have already made significant cuts to their 2020 capex budgets due to the impact of the Covid-19 pandemic and the ongoing oil price war, a Rystad Energy’s analysis shows.

A jack-up rig; Author: SP Mac

According to Rystad Energy, E&Ps in Southeast Asia have been very cautious by locking in rigs on long-term contacts, making it unlikely that options will be exercised.

Rystad sees that if no new contracts are signed and no options are exercised for the remainder of 2020, utilization will drop by 54% in the region from March to December. This translates to an 18% year-on-year drop from 2019 levels.

Of the options in the regional market for 2020, 40% are for work with Petronas. Therefore, market development this year will be quite dependent on the volume of options that Petronas decides to exercise.

Petronas is proactively striving to keep operations running as smoothly as possible, and rigs with local crews might not be greatly inhibited. However, after the recently announced two-week extension of the lockdown in Malaysia, several rigs operating in the country are expected to gear down activity in the next few weeks due to crew timeout.

Most of the planned drilling programs in Southeast Asia this year are comprised of brownfield work, and Rystad expects operators to reduce their drilling budgets most within the infill drilling segment.

“On a slightly more positive note, existing rig contracts probably face less danger of being terminated in Southeast Asia – where national oil companies tend to support the national drilling contractor – than in other regional markets. That is not to say there won’t be any contract terminations, but we expect the intensity to be lower than it is globally,“ said Rystad Energy’s senior oilfield service analyst, Jo Friedmann.



Looking at activity in the coming year, lower oil prices are expected to slow sanctioning activity in the region, meaning less demand for drilling and completion services, as well as for offshore oilfield services in general. During the previous downturn, the pace of sanctioning long-cycle deepwater projects slowed, and Rystad expects this trend to be repeated.

New deepwater projects currently under evaluation by operators in Southeast Asia are likely to face delays, though there hasn’t been any direct communication from operators yet to this effect. The Limbayong project in Malaysia, Abadi in Indonesia, Shew Yee Htun in block A6 in Myanmar, and the Kelidang Cluster in Brunei, are all considered to be at risk in the current oil price environment.

“The oilfield service industry is now far more fragile than it was in 2014. The expected reduction in activity will, in all likelihood, translate into lower prices – and this will probably happen sooner rather than later, “ added Friedmann.

Reports suggest that operators are asking service companies for a 20% to 25% reduction in pricing globally, a trend Rystad expects to see in Southeast Asia as well. Should the oil price and virus issues persist for six months or more, we could again see a race to the bottom, with rig rates plummeting towards operational expenditure levels.

For players in the Southeast Asian well services segment, unit prices have not grown as quickly in recent years as they have for drilling contractors, and therefore a smaller price drop is expected.


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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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Project sanctions take the hit as Woodside halves spending plans

Australian energy giant Woodside has made a decision to reduce its total expenditure for 2020 by 50% as a response to the uncertainty in the global environment. As a result, final investment decisions for several projects will be impacted. 

Source: Woodside

The current uncertain global investment environment arising from the spread of COVID-19, combined with an oversupply of crude oil and LNG, has led to a significant decline in prices, requiring decisive and swift action.

Woodside said on Friday it is taking a prudent approach to cash flow management, given the considerable uncertainty in the near-term investment environment and the magnitude of forward capital investment decisions.

Key features of Woodside’s response include changes to Woodside’s 2020 work plan resulting in an approximately 50% reduction in forecast 2020 total expenditure and review of all non-committed activities supporting Woodside’s growth activities resulting in an approximately 60% reduction in Woodside’s 2020 guided investment expenditure.

Furthermore, Woodside’s response includes deferral of targeted final investment decisions (FID) for Scarborough, Pluto Train 2, and Browse projects.

The company said it is continuing to progress capital investments in Sangomar Field Development Phase 1 (Sangomar), Pyxis Hub, and Julimar-Brunello Phase 2.

Woodside’s production guidance remains unchanged at 97 – 103 MMboe.

According to the companty, the full impact of lower oil price will not be realized until late 2Q 2020 due to the lag between the oil price and the realized LNG price.

Oil price is expected to be volatile at least in the near-term. To reduce exposure to the potential further downside and increase revenue certainty, Woodside has hedged 11.85 million barrels of oil between April and December 2020 at an average price of $33.47 per barrel.

Expenditures halved 

Woodside’s 2020 work plan has been reviewed and non-essential activities have been cancelled or deferred.

Total expenditure in 2020 is forecast to reduce by approximately 50% to approximately $2.4 billion. This includes an approximately $100 million reduction in operating expenditure and an approximately 60% reduction in investment expenditure to $1.7 – 1.9 billion.

Future external spend has been minimized by reallocating required activities to internal Woodside resources.

Employee numbers have been frozen but graduate hiring will continue, Woodside noted.

Some of the impacts of this reduced expenditure are deferral of most proposed exploration activities, although some seismic acquisition will continue, reducing overall exploration expenditure by approximately 50% to $75 million.

Woodside said that the FID for Scarborough and Pluto Train 2 would be delayed to 2021 and the FID for the Browse would also be delayed.

Finalization of commercial agreements and regulatory approvals will continue for Scarborough, Pluto Train 2, and Browse and there will be some ongoing engineering work in preparation for final investment decisions.

Work on the Sangomar Phase 1 development started in early in 2020 and Woodside said it is taking early action to proactively manage the emerging impacts of COVID-19 on the supply chain and project schedule.

“We are working with contractors, the Government of Senegal and our joint venture partners to evaluate options to reduce total cost and near-term spend whilst protecting the overall value of the investment,” Woodside said.

As a result of these changes, Woodside’s investment expenditure guidance for 2020 is now $1.7 – 1.9 billion.


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Spirit Energy boosts output at two North Sea fields

Following successful offshore drilling campaigns, oil and gas company Spirit Energy has boosted production from two North Sea fields.

Hummingbird Spirit FPSO; Source: Spirit Energy

According to Spirit Energy’s update on Friday, the first gas from the new C6 well at Spirit Energy’s Chiswick field in the Southern North Sea was achieved on March 11, 2020, and has added up to an additional 15 million standard cubic feet of gas per day to the field.

The Chiswick field, around 75 miles off the coast of Norfolk, has been producing gas since 2007. The new well brings overall production from the Greater Markham Area (GMA) to 110 million standard cubic feet of gas per day – enough to heat nearly 950,000 homes.

The development well, completed two months ahead of schedule, is expected to help extend life of the GMA hub to 2028.

The GMA hub spans both the UK and Dutch Continental Shelves, and comprises the Markham, Chiswick, Grove, and Kew fields.

Chestnut field

The Chestnut field is located in block 22/2a of the UK Continental Shelf (UKCS), in 117m water depth.

Spirit said that, together with partner Dana Petroleum, it had completed drilling of a new production well at the Chestnut field, extending the life of that field by as much as three additional years.

Initial expectation when the Chestnut field first came online more than a decade ago was for a little over two years’ production.

First oil from the new Chestnut well was achieved on March 19, 2020. Thanks to the £56 million ($67.32M) investment from Spirit Energy and Dana Petroleum in the new well and a contract extension with Teekay Corporation for the Hummingbird Spirit FPSO, another 2.5 million barrels have been unlocked, Spirit Energy explained.

Neil McCulloch, Executive Vice-President Technical & Operated Assets, said: “The results from the new well at Chiswick exceeded our expectations and will provide us with valuable data to identify further drilling targets in the area.

“At the same time, the work our teams have done alongside our partner Dana Petroleum and our supply chain colleagues, notably Teekay Corporation and Altera Infrastructure, to maximise the potential of the Chestnut field has been exceptional and is making this field a notable success story.

“The industry faces unprecedented challenges but, taken together, the additional gas and oil from Chiswick and Chestnut provide a boost to production from two UK fields at a time when the secure supply of energy is critical.”


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OMV joins line of oil and gas operators making budget cuts for 2020

Joining other oil and gas operators in actions to safeguard their businesses amid coronavirus crisis and the oil price war, Austrian oil and gas company OMV has decided to reduce its investments in 2020 by 20 percent, cut costs by around $217 million, and delay acquisition projects.

Source: OMV

The global spread of the coronavirus has abruptly transformed people’s lives and significantly worsened the economic environment. OMV said on Thursday that it is responding to this situation with targeted measures to safeguard the company’s economic stability and the secure supply of energy.

Rainer Seele, Chairman of the Executive Board and CEO of OMV: “We made provisions for every employee to work from home parallel to the national exit restrictions in movement. Employees who are critical to the business or supply security are the only ones working in the field and they are subject to stringent safety and hygiene standards – to protect them and to protect all of our partners and customers”.

At the same time, OMV said it is implementing targeted measures to safeguard the company’s financial strength. In this context, the executive board has approved an action plan of more than EUR 4 billion ($4.4B) for the year 2020.

This includes a reduction of around EUR 500 million ($547.7M) in organic investments to below EUR 2 billion ($2.19B) in 2020. This is a reduction of more than 20% compared with the originally planned investments of EUR 2.4 billion ($2.6B) for 2020.

It also includes cutting costs by around EUR 200 million ($216.5M) compared to 2019 (opex and exploration expenditures).

Furthermore, OMV’s measures include payment of the purchase price for the additional 39% share in Borealis in two tranches, whereby more than EUR 2 billion ($2.2B) will not be due until the end of 2021. The effective closing date of this transaction is unaffected.

Finally, it includes postponing investment and acquisition projects totaling EUR 1.5 billion ($1.6B), in particular the interest in Achimov 4/5 in Russia.

“These measures will safeguard OMV’s ability to act in this challenging situation. Specially established task forces are monitoring developments very closely in order to make any necessary strategic adjustments at the right time”, said Rainer Seele.


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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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Maersk drillship’s gig with Tullow cut short

Danish offshore drilling contractor Maersk Drilling has received a notification from Tullow Oil of early termination for convenience of the drilling contract for the drillship Maersk Venturer.

Maersk Venturer drillship; Source: Maersk Drilling

Maersk Drilling said in a statement on Tuesday that the drillship Maersk Venturer has been working for Tullow offshore Ghana since February 2018.

The contract, signed in late 2017, was for development drilling on the Jubilee and TEN fields offshore Ghana. It was expected to end in February 2022. However, following Tullow’s early termination decision, the rig is now expected to end the contract in June 2020.

As a consequence of the termination, Maersk Drilling’s revenue contract backlog is reduced by $175 million covering the period from the end of the contract to February 2022.

Subject to commercial prospects, Maersk Drilling said it would take measures to reduce Maersk Venturer’s operating costs following the end of the contract.

Maersk Drilling maintains the profitability guidance for 2020 of EBITDA before special items of $325-375 million.


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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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