Marine 700 rate change sign of times

Esso Exploration agreed to extend the delivery date of the Marine 700 drilling rig from Marine Drilling.

Esso Exploration agreed to extend the delivery date of the Marine 700 drilling rig from Marine Drilling. The delivery deadline was moved to September 1 from the original July 15. Actual delivery occured in early August, however.

Esso at first refused to take delivery of Marine 700, claiming the $165,510 day rate rig - ordered in a happier time for rig demand - was not ready. Some analysts have said the rig refusal was a tactic to push down the day rate. If so, it worked. The initial day rate for the five-year contract is now $130,000, though it is subject to market escalation annually. Several operators have been accused of nitpicking rig contracts signed in better times for the sole purpose of reducing day rates or getting out of contracts completely.

Despite contract challenges such as these - or perhaps to take advantage of the contrast between contracted high day rates and present-day low day rates, several rigs are being moved to the Gulf of Mexico. For instance, Global Marine said it was moving its jackups Adriatic IX and Adriatic X to the Gulf of Mexico from West Africa in order to take advantage of increased activity in the Gulf. Neither rig is currently under contract. They are set to arrive in the Gulf in late September.

There has been markedly more interest in the Gulf of Mexico lately. Some - not all - rig rates are up, though they are still much cheaper than this time last year.

Driving this trend are recovering commodity prices. Still, although several independents have reported plans to expand activity in the Gulf of Mexico during the remainder of the year, few majors have declared such an expansion, according to Bob Rose, President and CEO of Global Marine. "Since major oil and gas companies are responsible for most of the drilling activities in the international markets, we expect those markets to lag the improvement we believe is occurring in the US market."

Leviathan awards TLP contract

Some companies have seized upon the lower contract rates available in this portion of the oil and gas price recovery cycle. Leviathan said it hopes to save money by awarding a turnkey tension leg platform ( TLP) contract during this slack time for the construction industry. Modec International received the contract for the Sunday Silence TLP.

The contract includes the design, fabrication, and installation of the hull, tendons, pilings, and production risers. The TLP will be designed to process 25,000 b/d of oil and 55 MMcf/d of gas, and will also be capable of supporting a workover rig. The company is currently reviewing bids for the topsides and an announcement will be made in August. Modec will use its Moses TLP concept - a cheaper second-generation TLP designed for smaller fields. Leviathan CEO Grant Sims said that the life of the TLP is estimated at 30 years, though the life of Sunday Silence is expected to be significantly less - possibly seven or eight years. It was not clear where the TLP will be moved after the cutoff of the field, though it will be able to work in water depths to 6,000 ft.

Sunday Silence is located on Ewing Bank 958, 959, 1002, and 1003 in 1,500 ft of water. Leviathan subsidiary Flextrend Development holds 100% of the field. As planned, the TLP will be loaded out in early 2001, with production set to begin in the second quarter. Oil production will be tied into the Poseidon pipeline at Ewing Bank 873 and gas will be tied into the Monterey pipeline at South Timbalier 292. At peak, Sunday Silence may produce to the capacity of the facilities planned for the TLP, according to Leviathan. The US Minerals Management Service has awarded the field royalty abatement for production of up to 52.5 MMboe.

Asset swaps, sales proliferating

In the Gulf of Mexico and elsewhere, asset swaps and sales have been proliferating. Some are by companies that have financial problems and need the money. Others are by companies that decide to tighten their strategic portfolios, typified most recently by Enron's swap/spinoff of Enron Oil & Gas (now EOG Resources).

In that transaction, Enron agreed to accept EOG's China and India operations plus $600 million in cash to give up about 75% of its holding in EOG. EOG will keep its Gulf of Mexico holdings, which Enron said are no longer strategic for its North American marketing business. In a more typical transaction, Ocean Energy agreed to sell three producing oil fields in the Gulf of Mexico to Newfield Exploration. The properties are nearer to Newfield's existing Gulf properties than Ocean Energy's own.

Other solutions include partnerships. Duke Energy agreed to participate with up to 50% non-operating working interest in 13 of Ocean Energy Inc.'s exploratory drilling prospects on the Outer Continental Shelf offshore Louisiana and Texas.

Some other sales and swaps of note in the Gulf of Mexico this year have been:

  • Santa Fe Snyder bought interests in four Shell Deepwater areas, including interests in Macaroni and Angus, for $210 million.
  • Kerr-McGee bought Phillips Petroleum's interests in the Breton Sound 20 and Breton Sound 36 fields, and now holds 100% of both.
  • Energen sold its interests in 33 Gulf of Mexico blocks to Bellwether Exploration.
  • Elf Exploration retained advisors to evaluate and market a package of producing Gulf of Mexico properties, containing eight block interests. The blocks are Eugene Island 275, Main Pass 30, South Timbalier 38, Viosca Knoll 944, West Cameron 167, Eugene Island 108, Ship Shoal 84, and Ship Shoal 178.
  • Basin Exploration sold partial interests in seven Gulf of Mexico leases to an unidentified buyer for $5.6 million. The interests transferred are: East Cameron 65, 25%; East Cameron 220, 50%; Galveston 190, 22.5%; Main Pass 265, 25%; South Pass 47, 50%; Vermilion 83, 25%; and West Delta 63, 50%.

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