More Oil Rigs Leaving GoM

Thursday, July 06, 2006
According to The Post Gazette, jack-up and deep-water rigs are leaving the Gulf of Mexico for more lucrative jobs elsewhere. This is expected to accelerate production declines in the Gulf, putting upward pressure on domestic energy prices. The rig exodus is squeezing what was an already tight market for drilling equipment. In 2001, about 148 rigs were in the Gulf. Now, about 90 remain, and more are expected to leave soon. The rig migration will have the most pronounced effect on natural-gas production and prices because most of the rigs leaving the Gulf are jack-ups used to find gas in shallower waters. Gulf gas reservoirs are often quickly exhausted, so energy companies must keep punching new wells to maintain production. Why has the rig count dropped so sharply? The duo of hurricanes Katrina and Rita in 2005 destroyed five rigs. But the bigger factor is that drilling companies are signing long-term deals to send rigs overseas. Houston's GlobalSantaFe Corp., for example, agreed late last month to send four jack-ups -- rigs that stand on stilts and are used in shallow waters -- to the Persian Gulf, where Aramco, the Saudi national oil company, will pay more than $160,000 a day to drill for oil and gas for four years. Ensco International Inc. will send a jack-up to Tunisia next year, where it will fetch day rates of more than $200,000 for as much as two years of work. Contracts for the larger deep-water rigs are fetching day rates exceeding $500,000. Fewer available rigs mean fewer new wells to stem the annual declining production in the Gulf of Mexico, a region that produces about one-quarter of U.S. oil and gas. Federal offshore oil production, predominantly in the Gulf, decreased 19 percent between 2003 and 2005, to 458 million barrels a year, according to the EIA. Offshore natural-gas production fell to four trillion cubic feet a year in 2004 from 5.1 trillion cubic feet a year in 2001, according to the latest data. The rig departures also represent something of a sea change in the global energy market. For years, the Gulf of Mexico -- the birthplace of offshore drilling and a very active region for underwater exploration -- dictated global contract terms for drilling equipment. But with the emergence of several offshore zones, the Gulf is being eclipsed by hotter prospects off the coasts of Africa, the Middle East and China. By contrast, many of the Gulf of Mexico's richest targets have already been drilled, leaving only expensive deep-water and ultradeep reservoirs untapped. The demand has sparked a dramatic increase in offshore rig-building. Companies world-wide are currently building 91 major offshore rigs, up from fewer than 10 in 2003, according to ODS-Petrodata, an offshore-oil-and-gas market-analysis firm. But this wave of new rigs isn't expected to start plying the seas until 2009. To compete with international markets, Gulf of Mexico producers will have to pay higher rates to lease rigs. In February, BP PLC agreed to pay Transocean Inc. $520,000 a day to keep a massive drill ship in the Gulf; the three-year contract starts at the end of 2007. BP leased the same ship in 2004 for $184,500 a day. (Source: http://www.post-gazette.com)

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