Archives for posts with tag: rig owners

The AHTS spot market in the North Sea is notable for the speed in which rates can shift, responding rapidly to supply and demand pressures. In 2014 alone the spot charter rate for an AHTS 18,000+ bhp fluctuated dramatically from a high of £170,165/day in August to a low of £5,819/day in the last week of the year.

Blame It On The Weatherman

Rig moves are the key AHTS demand driver in the North Sea. Pressures that affect the volume of these, along with the supply of units in the North Sea, dictate the number of available units, which in turn determine AHTS spot fixtures rates.

The largest peak in spot rates in the last three years occurred in August and September 2014. It was the result of a temporary removal of some North Sea units for work on exploration campaigns in the Russian Arctic. This caused a drop in the supply of vessels, that was eventually compounded by numerous rig moves, dropping availability and lifting spot rates.

Conversely, during December, a short three months after the September peak, AHTS spot rates in the region had fallen below £10,000/day for the first time since 2010. During the month, North West Europe was battered by a large weather depression resulting in strong winds and high seas, suspending many rig moves and forcing AHTSs to compete with PSVs for supply duty charters, bringing down the spot rates for both AHTSs and PSVs.

Rollercoaster

The price of Brent crude has fallen over 50% since June 2014 to below $50/barrel at the time of writing. As oil companies seek to rebalance their budgets in a new oil price world, exploration budgets have been cut. One of the ways in which drill rigs are utilised is the drilling of exploration and appraisal wells, demand for which has suffered in Q4 2014, negatively impacting AHTS demand in this period.

The drop in oil price has also damaged hope that exploration campaigns in expensive, harsh, Arctic environments will take place. Previously, these campaigns have taken vessels from the North Sea fleet, protecting the market from oversupply. Notably, Statoil has handed back three licenses offshore Greenland and announced that it will slow Arctic and Barents exploration to control CAPEX.

Oversupply in the North Sea can be demonstrated by the increase in the average number of vessels available. This rose steadily in 2012 and 2013, and by 39% in 2014 to an average of 13.1 vessels. This increase in supply has contributed to poorly performing spot rates in most of 2014, aside from the late summer spike. Increasing levels of supply and weaker demand indicators have forced some vessel owners to lay-up more ships in an effort to prevent oversupply impacting spot rates further, even laying-up units built as recently as 2014.

C’est La Vie

Clearly the volatile North Sea AHTS market is highly susceptible to short term demand pressures such as the weather and the whim of oil companies that dictate when rig moves occur. However, there are longer-term supply and demand forces at work, which although often obscured by dramatic short-term changes, can influence spot rates just as strongly.

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‘Pre-salt’ is usually a term associated with Brazil, where giant offshore field discoveries in the Santos and Campos basins have been grabbing headlines since 2007. Now oil companies are looking across the ocean for their pre-salt game. Conjugate basins offshore Gabon, Congo and Angola could be as juicy as the Santos and Campos pre-salt plays have proved. Following a number of recent scores by Cobalt, Eni, Harvest, Maersk and Total, the hunt is on.

Gearing Up

As the Graph of the Month shows, 16 wells targeting West African pre-salt reservoirs have been drilled since start 2011 with a success rate of 75%: 9 offshore Angola, 6 off Gabon and one off Congo. Oil from West African pre-salt was in fact first found in 1968. Its prospective yield was not appreciated though, as only recently did seismic imaging become able to give an accurate picture of the pre-salt. The ultra-deepwater of Angola’s Kwanza Basin also inhibited pre-salt exploration before sixth generation floaters. But, as Brazil has shown, operators now have all the technology they need to pursue the pre-salt.

Hunting Elephants

Some 27 future pre-salt wells are reportedly planned by oil companies or are anticipated through to end 2015, as the Graph of the Month shows. Four of these wells have been spudded. Often smaller E&P companies play a vital role in opening up new frontiers. In West Africa though, supermajors and other large players are already loading up. Conoco has 4 planned wells; Repsol, 3; Eni, 2; Shell, 2; and Total, 2. Of the 27 wells, 70% are offshore Angola and will therefore be in water depths ranging from 800-2,000m. The remainder are to be spudded off Gabon, likely in water depths up to 300m. In either case, companies will be hoping to hit world-class finds, like Cobalt’s Cameia discovery, which is expected to be brought onstream at 80-120,000 bpd in 2017.

Fieldcraft

So, the West African pre-salt play is still in the early stages of exploration and appraisal. If it proves prolific though, and if operators can bring it to fruition, a pre-salt bonanza would more than offset production decline from West Africa’s mature fields. With less stringent local content requirements and more international oil company control, development may be less fraught than in Brazil. Cobalt have already announced plans for 3 multi-field pre-salt hubs centred around the Cameia, Lontra and Orca fields offshore Angola. Given that the average water depth of Angolan pre-salt wells is 1,274m, MOPU solutions are likely to be favoured. The previous caveats noted, the FPSO ordering boom in Brazil could be replicated in Angola, which already accounts for 23% of world FPSO deployment (second to Brazil). In the shallower waters off Gabon, fixed platform solutions are probable, if finds reach the development stage.

In the near term then, the pre-salt safari offshore Africa looks to be an exciting campaign, with potential to generate even more interest in the region and hence opportunities for survey vessel and rig owners. Out towards the end of the decade, Angola could be the new Brazil, with pre-salt development contracts abounding.

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