U.S. Deep-Water Offshore Oil Industry Trainwreck Approaching

The U.S. Deepwater Offshore Oil Industry is a trainwreck in the making. The low oil price continues to sack an industry which was booming just a few short years ago. The days of spending billions of dollars to find and produce some of the most technically challenging deep-water oil deposits may be coming to an end sooner then the market realizes.

Drilling activity in the Gulf of Mexico hit a peak in 2013 when the price of oil was over $100 a barrel. However, the current number of rigs drilling in the Gulf of Mexico has fallen to only 37% of what it was in 2013. This is undoubtedly bad news for an industry that fetches upward of $600,000 a day for leasing these massive ultra-deepwater rigs.

One of the largest offshore drilling rig companies in the world is Transocean, headquartered in Switzerland. They lease ultra-deepwater rigs all over the globe. When the industry was still strong in 2014, nearly half of Transocean’s fleet of 27 ultra-deepwater rigs were leased in the Gulf of Mexico. Even though Transocean was quite busy that year, its ultra-deepwater rig utilization was 89% during the first half of 2014, down from an impressive 95% in 1H 2013.

The term utilization represents the total number of working rigs in the fleet.So, in 2013, Transocean had 95% of its rigs busy drilling oil wells. But if we look at the following chart, we can see the disaster that has taken place at Transocean since the oil price fell by more than 50%:

(Click on image to enlarge)

Currently, Transocean’s ultra-deepwater rig count has dropped to a low of 12 versus 27 in 2014.And it’s even worse than that. Since 2014, Transocean added three more new rigs for a total number of 30. Thus, Transocean’s ultra-deepwater rig utilization is down to a stunning 37% compared to 95% just four years ago.So, when a rig isn’t working, it’s not making revenue.

The loss of revenue from these ultra-deepwater drilling rigs seriously hurts the company’s bottom line. According to Transocean’s Q2 2017 Report, they lost $1.7 billion in one quarter. However, the majority of that loss was due to a large asset disposal.Regardless, even if we go by adjusted income and remove the large disposal writeoff, Transocean still only made a whopping $1 million adjusted profit on total revenues of $1.5 billion.

To give you an idea of the size of one of Transocean’s rigs lets takes a look at its Sedco Express ultra-deepwater drilling platform.

The Sedco Express deepwater is semi-submersible that is longer than a football field (364 ft) and weighs 38,000 tons when operating. The Sedco Express rig has a crew of 184 people and can drill a well 35,000 feet deep. When these large rigs were in high demand; they were contracted to drill oil and gas wells all over the world.

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Michael Molman 1 year ago Contributor's comment

Found the article interesting. I was actually considering doing more research into the offshore drilling industry since energy has been underperforming even as oil prices are recovering ground. I believe there might be some opportunities in the energy sector as a whole, now I can focus less on this specific sector.