Soumya Mutsuddi, Esgian

This week Shell announced a final investment decision for the Crux field off Australia, and also received regulatory clearance for the Jackdaw field off UK. Meanwhile, drillship Polaris landed a new contract off India.

Contracts 

6th gen drillship Polaris was awarded a 9-month contract by ONGC involving operations offshore India. The rig is understood to be the lowest bidder in ONGC’s requirement for a drillship capable of operating in depths of 1,500m. The total contract value is approx. $66.5 million with commencement expected in Q4 2022. The rig is currently stacked off Sri Lanka, and owner Aquadrill informed that it will be relocated to Malaysia for reactivation, contract preparation and upgrades, including equipping the rig with the piping required for future use of a Managed Pressure Drilling system. Worth noting that ONGC also has another drillship requirement (3,000m water depth) for a firm duration of 21 months with possible extensions. Vantage Drilling and Transocean are understood to have offered their rigs for the same.

Tender-assist rig T-15, managed by Energy Drilling, was awarded a charter for five months plus a three-month priced option for work off Thailand. Market sources indicate that the client is PTTEP. The total contract value for the firm portion is expected to be approx. $11.6 million and work is expected to commence in August 2022 following reactivation and preparation. In the event the optional period is exercised, the total additional contract value is expected to be approx. $5.4 million. The T-15 last worked in 2019 for Chevron off Thailand.

i3 Energy entered into a contract with Petrofac Facilities Management Limited (PFML) under which PFML will provide well engineering, operations management, and operator services for the drilling of the Serenity appraisal well in UK North Sea licence P.2358, Block 13/23c. The contract allows i3 to access PFML’s services for a three-year period. PFML has an existing contract with Stena Drilling for the use of the harsh environment semisub Stena Don. i3 has secured a well slot for Serenity drilling with a commencement date between 15th August and 15th September 2022.

Valaris received a termination notice from Equinor for the contract awarded to drillship Valaris DS-11. The termination will take effect at the end of June, and the company’s total backlog of $2.5 billion (as of 2nd May 2022) included about $428 million related to this contract. Valaris will receive an early termination fee that the company says is more than sufficient to cover expenses and commitments incurred by Valaris on the project. The charter was originally secured by TotalEnergies for work on the North Platte field in US GoM starting mid-2024, for a duration of about 3.5 years. The rig was scheduled to undergo a number of upgrades ahead of the charter, including installation of a 20K BOP stack. In February 2022, TotalEnergies announced its withdrawal from the project, following which Equinor took over operatorship and the contract was subsequently novated to Equinor. Valaris DS-11 is currently stacked in the Canary Islands.

Drilling and discoveries

6th gen semisub Valaris MS-1 spudded the Sasanof-1 exploration well in the Sasanof Prospect (permit WA-519-P) offshore Australia. Operator Western Gas anticipates drilling through the target reservoir section to occur between 2nd and 5th June 2022. Following completion of its engagement with Western Gas, the rig is scheduled to commence work for Santos in Australian waters, with the contract duration running into October 2023. Then, the rig has another contract lined up with an ‘undisclosed operator’, which is expected to keep the rig busy until August 2024.

Constellation confirmed that semisub Olinda Star commenced a new contract with ONGC involving operations off the east coast of India. The contract is for a duration of 16.5 months. The rig has been working for ONGC since 2017. Olinda Star is one of the two semisubs currently in the region, the other being Louisiana. The 1982-built Louisiana recently concluded its final engagement with ONGC, and market sources indicate that the rig will be scrapped. 

ConocoPhillips completed the drilling of appraisal well 6507/5-11 on oil discovery 6507/5-10 S (Slagugle) in production licence 891, in the Norwegian Sea. The well was found to be dry and has been permanently plugged and abandoned. Drilling was conducted by the harsh environment semisub Transocean Norge, which is now drilling wildcat well 6507/4-3 S in ConocoPhillips-operated production licence 1064, also in the Norwegian Sea. The rig’s firm contract with the operator runs into September 2022, and there are understood to be options attached. 

Neptune Energy received permission to drill exploration wells 35/6-3 S and 35/6-3 A in the Ofelia Agat prospect (production licence 929) in the North Sea off Norway. Drilling will be carried out by the harsh environment semisub Deepsea Yantai. The rig is expected to commence work with Neptune in July 2022, post completing a one-well engagement for PGNiG off Norway starting in June. 

Aker BP concluded the drilling of wildcat well 2/8-19 (production licence 1085) in the North Sea off Norway. The well encountered oil and gas columns in its primary and secondary exploration targets. Preliminary estimates place the size of the discovery between 0.6 and 1.9 million Sm3 of recoverable oil equivalent. The licensees will assess the discovery as regards potential further delineation. The well was drilled by harsh environment jackup Maersk Invincible, which is now headed to Denmark for classification. The rig is expected to recommence work for Aker BP in Q3 2022. 

Demand

Shell took a final investment decision for development of the Crux natural gas field, offshore Western Australia. The project will supply natural gas to the existing Prelude FLNG facility and development will consist of a platform operated remotely from Prelude. Shell indicated that five wells will be drilled initially, and an export pipeline will connect the platform to Prelude, which is around 160km to the south-west of Crux. Shell added that project construction will start in 2022 and first gas is expected in 2027. Market sources have identified Crux as the project where semisub Valaris MS-1 is scheduled to commence drilling, starting October 2023. While Valaris had not identified the operator or project in its latest fleet report, it had indicated that the contract would be subject to operator taking FID. The rig is currently drilling for Western Gas off Australia, and will next commence operations on Santos-operated Barossa project, which is expected to keep it busy until late Q3/early Q4 2023. In its environment plan for the project, Shell had indicated that drilling at Crux would commence during Q3-Q4 2023 for approximately two years and the work would be completed no later than 2025.

Shell received regulatory approval for development of the Jackdaw field in the UK North Sea. A development plan for the field was rejected on environmental grounds last year, however the approval from Offshore Petroleum Regulator for Environment & Decommissioning (OPRED) came after Shell submitted a modified development plan and also at a time when UK looks to secure domestic energy supplies. As per Shell, drilling of wells in the field is planned during Q3 2023 – Q4 2024 and first production is planned by Q3/Q4 2025. The field would be developed as a tie-back to the existing Shearwater platform. 

ONGC plans to intensify its exploration activity and has allocated an exploration budget of INR31,000 crore (approx. $4 billion) for the period FY2022-25, an increase of 150% over the allocation for the period FY2019-22. The NOC also plans to leverage international collaborations with ‘reputed global majors’ to boost exploration, for which talks are in an advanced stage. ONGC indicated that its exploration intensification campaign would be funded through its internal program as well as through government funding. The government-funded program for appraisal of unapprised offshore areas in the Exclusive Economic Zone (EEZ) will be done in three sectors namely West Coast of India, East Coast of India and Andaman offshore. For the same, ONGC plans to complete the technical bid opening (TBO) for seismic data acquisition by June 2022. In Andaman Basin, ONGC presently holds two blocks for exploration under Open Acreage Licensing policy (OALP), while the Government of India has also acquired seismic data in some sectors within ‘No-Go’ areas and few prospects have been already identified.  The company plans to drill six wells in the next three years (two under ONGC committed work program, and four through government funding) in the Andaman Basin. For the same, ‘reputed global companies/consultants’ are being invited for the assessment of the basin for future exploration. ONGC’s internal program is divided into three components; re-exploration of mature basins, consolidation of emerging basins, and probing of emerging and new basins. Under its internal program, ONGC is trying to probe around 1,700 million tonne of oil and oil equivalent gas (MMTOE) of Yet-To-Find (YTF) reserves during FY 2022-25. The activities include 2D and 3D seismic survey, followed by drilling of around 115-120 wells with an estimated outlay of INR10,000 crore (approx. $1.3 billion) every year for next three years. In addition, ONGC noted that the Indian government’s facilitation has resulted in release of about 96,000 sq. km of area so far, earlier demarcated as ‘No Go’ zone. ONGC expects this to help achieve its acreage acquisition program of bringing around 500,000 sq. km under active exploration by 2025. 

Rig Sales / Charter

Vantage Drilling closed the sale of jackups Emerald Driller, Sapphire Driller, and Aquamarine Driller to ADES for a purchase price of $170,000,000 in cash, together with an additional $34 million in respect of contract preparation cost. The purchase price is subject to certain adjustments. All three rigs are operating in Qatar, with the Aquamarine Driller and Sapphire Driller working for North Oil Co, while the Emerald Driller working for TotalEnergies. Vantage and ADES have also entered into support services agreements, whereby Vantage will provide support services for the rigs in Qatar for three years in exchange for customary fees and reimbursements.  

ADNOC Drilling signed an agreement to acquire two premium jackups as part of its fleet expansion strategy. The company said that the two jackups are Gusto MSC design, premium independent leg cantilever rigs, and are being acquired from Well Target Five Limited and Well Target Six Limited. They are expected to join ADNOC Drilling’ fleet in Q3 2022. No further details were provided.

Technology and upgrades

International Maritime Industries (IMI) signed an agreement with Keppel LeTourneau (KLET) to design and build offshore drilling units. IMI said that the partnership will also help leverage KLET’s expertise and support in the training and development of its employees through technical knowledge transfer. 

Financials

Icon Offshore reported revenue of RM67 million ($15 million) for Q1 2022, which decreased from RM80.9 million ($18 million) reported in quarter ended December 2021. The decrease was mainly due to lower utilisation of vessels in the company’s OSV business. Drilling segment accounted for approx. 41% of the revenue, the rest being accounted by the OSV segment. Profit after taxation for the period also declined to RM2.9 million ($0.7 million) from RM7.5 million ($1.7 million) reported in the preceding quarter, due to lower revenue. The company’s order book as at 31st March 2022 stood at RM680.3 million ($155 million), of which drilling backlog accounted for RM44 million ($10 million). The company’s only rig, 2014-built jackup Icon Caren is understood to be currently operating for ConocoPhillips offshore Malaysia. The contract involves drilling of three firm wells and includes one optional well. 

Northern Ocean reported operating revenue of $10.1 million for Q1 2022, decreasing from $18.1 million reported in the previous quarter. The company’s contract revenue for the period of $9.8 million also decreased from $17.7 million reported in the previous quarter. The reduction in contract revenue was due to the conclusion of Northern Ocean-owned semisub West Bollsta's bareboat charter agreement with Seadrill. The net loss from continuing operations before taxes for the period was $14.2 million compared to a loss of $6.0 million in the previous quarter. During January 2022, Northern Ocean entered into an agreement with Odfjell Drilling for the management and marketing of the company’s semsiubs West Mira and West Bollsta. The rigs remain idle in Norway and are being currently marketed by Odfjell. Northern Ocean indicated that it remains dependent on loans and/or equity issuances to finance its loan obligations and working capital in the next twelve months.

Borr Drilling reported operating revenue of $82 million for Q1 2022, increasing by 19% against Q4 2021. This was due to an increase in operating days for some of the company’s jackups during the quarter and increased bareboat revenue from its JVs in Mexico. The company’s net loss for the period increased by $5.2 million against the preceding quarter to $51.3 million. Adjusted EBITDA for the period was $21.4 million, decreasing by $3.6 against the previous quarter. As of the date of reporting in 2022, Borr was awarded ten new contracts, extensions, exercised options and LOAs representing $487.4 million worth of potential backlog (excluding options). The company’s backlog (as of date of reporting results) was $853.3 million (including mobilisation revenues and contracts secured through drilling JVs), with 20 of its 23 rigs currently contracted. On its ongoing refinancing process, Borr indicated that the company is in discussions with its lenders and seeks to complete the refinancing before end of the second quarter.

Odfjell Drilling reported operating revenue of $155 million for Q1 2022, increasing from $115 million reported in Q1 2021 mainly due to increased revenue generation in the company’s owned rig fleet during the period. EBITDA for the period increased to $68 million from $36 million reported in the corresponding quarter of 2021. Odfjell reported a net profit of $21 million for the period compared to a loss of $13 million reported in Q1 2021. The company’s contract backlog was $1.1 billion, of which $0.8 billion represented firm commitments.   

Other News

Woodside announced the completion of its merger with BHP’s oil and gas portfolio. As part of the merger, Woodside has acquired the entire share capital of BHP Petroleum and issued 914,768,948 new Woodside shares to BHP, for distribution to its eligible shareholders. Woodside will receive net cash of approximately $1 billion, which includes the cash remaining in the BHP Petroleum bank accounts immediately prior to completion. Woodside said that, as a result of the merger, the company is now a top 10 global independent energy company by hydrocarbon production and the largest energy company listed on the Australian Securities Exchange (ASX). Woodside CEO Meg O’Neill said that the merger delivers a diverse portfolio of quality operating assets, plus a suite of growth opportunities across oil, gas, and new energy. 

Sval Energi completed the acquisition of Spirit Energy’s Norwegian portfolio in a $1,026 million deal. Sval informed that the acquisition includes 45 licences (six operated), including seven producing fields (two operated) and several development and exploration opportunities. As of date, Sval Energi’s portfolio comprised of nine producing assets, two operatorships, as well as seven development projects and two discoveries.

Hurricane Energy and JV partner Spirit Energy decided to relinquish licence P2294, containing the Warwick discovery, in the Greater Warwick Area offshore UK. Hurricane said that further appraisal and development costs to reach an economic development on the Warwick discovery was not feasible, given the remaining licence term. This is in addition to the previously announced decision to relinquish the Lincoln P1368(S) licence sub area.

Tullow Oil and Capricorn Energy reached an agreement on the terms of an all-share combination as per which Capricorn shareholders will own 47% and Tullow shareholders will own 53% of the combined group on completion of their merger. Tullow has over 30 licences across eight countries in Africa and South America, while Capricorn currently holds a portfolio of development, production and exploration assets in Africa, the Mediterranean, the North Sea, Mexico and South America. 

KeyFacts Energy Industry Directory: Esgian