The Dual Carrier, a towable dry dock vessel with heavy lift capacity and 30,000-ton load-bearing capabilities, recently arrived at the HAM Marine shipyard in Pascagoula, Miss. The long-term agreement with Rotterdam-based Workships Contractors BV gives HAM Marine joint venture operating control of the Dual Carrier, which is the only carrier of its kind in the Gulf of Mexico.
Sale shows US Gulf's strength, but will the drilling units be there?
Clearly, the Central Gulf of Mexico sale held earlier this month was large, by any measurement, but it might have been much larger had there been more certainty about the availability of drilling units in the forseeable future. Central Gulf of Mexico lease sale No. 166 offered 5,063 blocks (27 million acres), of which 78%, or 3,959 blocks, are in royalty-relief depths beyond the 200-meter contour.
"The results of Central Gulf Sale 157, held in April, 1996, clearly indicated that royalty relief was a tremendous success by setting an all-time leasing record on the number of bids received and number of blocks leased," said MMS Director Cynthia Quarterman.
Under the interim rule, MMS will apply royalty suspension volumes to new fields that were not producing prior to Nov. 28, 1995. In water depths of 200-400 meters, the MMS will suspend royalties on 17.5 million BOE per field. On fields in water between 400 and 800 meters deep, there are no royalties paid on the first 52.5 million BOE. In fields located in water deeper than 800 meters, royalties are forgiven on the first 87.5 million BOE.
While royalty relief and deepwater opportunities have generated a lot of excitement in the industry, some observers think oil companies are buying too many leases for the number of working rigs available. With leases running five years for 200- to 400-meter water depth, eight years for 400- to 800-meter depths, and 10 years beyond 800-meter water depths, a limited window of time exists during which oil companies can exploit these purchases.
Industry analyst Matthew Simmons of Simmons & Company International said he is glad to see record-breaking lease sales, but is worried this accelerated growth in offshore exploration, and especially deepwater, will develop into a "Catch 22" and head off the current oil boom before it gets up to speed.
From Simmons' point of view, companies posting blockbuster bids for deepwater leases might do better to put some of that money into longer drilling contracts to encourage the growth of the offshore rig supply. Simmons' estimates show there will not be enough rigs available to drill the leases purchased in the last Central Gulf round.
To illustrate the problem with this unbridled expansion, Simmons explained that as of mid-1998, there will be only 40 rigs in the world capable of drilling in the 3,000-ft water depths that have become the "next big thing" in offshore exploration. Of this number, 14 or 15 are also harsh environment rigs that limit their work to the North Sea. This means there are no more than 25-30 rigs anywhere in the world that can accommodate the requirements of these deepwater wells. Simmons said the average lease is host to no fewer than nine wells, with an average turnaround time of about 45 days per well. Using these numbers, Simmons calculates it would take 45 rigs working at 100% utilization for the full 10 years of the longest deepwater lease period just to explore all the leases sold in the last Central Gulf round.
What Simmons offhandedly refers to as "the worldwide rig crisis" will only be aggravated by the success of the March 5 sale. The unavoidable result, according to Simmons, is that some of these high-dollar leases will remain untapped through their 10-year lease period simply because there will be no rigs available to drill the wells.
Even if the drilling contractors were able to convince oil companies to sign the longer leases needed to justify new builds, Simmons said there are delays all the way down the supply chain. The contractors are finding it difficult to locate the components needed to build a new rig. If a company began construction on a new deepwater rig on the publishing date of this article, Simmons said, it would not be delivered for 20 months and would not be able to start a well until the next millennium. This may not be too late for a deepwater, 10-year contract, but it would cut things very close for all those five-and eight-year leases bid on March 5.
Simmons said the excitement, publicity, and dollars generated by a record-setting lease sale are good for the industry, but he says he can't help cautioning anyone who will listen that turning in a winning bid is no guarantee that the well will ever be drilled.
Rig building costs outpacing increases in day rates - SCORE
The Summary of Current Offshore Rig Economics has become a bell-weather for the budding offshore E&P recovery. This survey follows the dayrates of jackups and semisubmersible drilling units across the world's largest markets and expresses these as a percentage of the rates needed to justify newbuilds.
The SCORE has risen for so many consecutive months that a slight drop for January hit as a surprise. It turns out there was more to the story than the numbers suggest. A percentage growth was headed off in January not by decreased demand, but by increased shipyard costs.
January's SCORE for the Gulf of Mexico was down by .3% from December, 53.5%, down from 53.8%. Global President and CEO Russell Luigs said this decrease does not mean there is less rig demand, but rather that there is too much shipyard demand. "The search for new oil and gas deposits in deepwater has created a shortage of rigs capable of drilling in water depths of 3,000 feet," he said.
As a result of this increased demand, and similar trends in the North Sea and West Africa theaters, Luigs said there are a total of 25 drillships and semis in shipyards being readied for deepwater exploration. This total includes seven new builds.
On top of this current work load, Luigs said there are several oil companies interested in signing up additional deepwater semisubmersibles or dynamically positioned ships for long-term contracts, causing contractors to query shipyards on pricing and delivery for new building.
"Since the number of yards with experience building semisubmersibles is limited, cost estimates have escalated rapidly. Most yards estimate that the earliest they could deliver a new semisubmersible or dynamically-positioned drillship is 1999," Luigs said.
MMS may face pressure to collect debt
Blowback from underpaid royalties in California now threatens the collecting authority of MMS.
The Minerals Management Service may face pressure from the US House of Representatives to collect about $400 million in outstanding royalty payments. It is possible these collection responsibilities could be transferred to the Treasury Department from the Department of the Interior, according to a bill called the "Royalty Collection Reform", authored by US Representative Carolyn Maloney D-New York that has yet to be introduced.
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
