BP re-evaluates deepwater drilling projects
On March 30, BP decided to terminate contracts for two deepwater floating platforms in the GoM, Seadrill Partner’s semi-submersible West Sirius and Ensco’s DS-4 drill ship. But the weakening market for exploration and completion vessels is being offset by the greater availability of lower cost ships for decommissioning work.
As a consequence of low oil prices, BP will relinquish the 10,000ft West Sirius semi-submersible once it has completed its present well, according to a statement from Seadrill Partners. The termination by BP should be effective by early May 2015.
Notice of termination
“In accordance with the cancellation provisions in the contract, Seadrill Partners will receive payments over the remaining contract term, now expiring in July 2017,” the statement said.
While this will lead to a backlog decrease of $160 million for Seadrill, the termination is not expected to have a significant impact on the company's cashflow. For example, BP's contract with Seadrill for West Capricorn has been extended.
Ensco announced to the New York Stock Exchange that BP would terminate the 12,000ft drillship Ensco DS-4 dril ship with effect from July 2015.
“Under the terms of the contract with respect to early termination for convenience, the customer is required to make a lump sum payment estimated to be $160 million … This amount covers the period from the estimated termination date of July 2015 through the originally contracted expiration date of 15 July 2016,” the company said.
The $560,000 day rate for the DS-4 reflected in the 16 March 2015 Fleet Status Report will continue to apply through the termination date, currently estimated to be July 2015.
After demobilization, the DS-4 will be marketed to new customers, whereas the West Sirius will be cold stacked until the oil glut passes - and the market for deepwater drilling returns.
Upside for vessel owners
The weakening market for exploration and completion vessels is being offset by the greater availability of lower cost ships for decommissioning work.
However, there are signs that this market is also being affected by economic conditions, although not as severely as the more discretionary spending on upstream work.
Helix Energy Solutions announced in February that it had agreed to amend its 2013 agreement with BP on the lease on the multipurpose semi-submersible Q5000, which has just been built in Singapore and is presently undergoing commissioning.
The agreement to use the vessel for well intervention was to have begun in the third quarter of 2015. This has now been changed to the April 1, 2016.
The overall contract period remains at five years, with an option to renew, with a minimum of use period of 270 days a year. Helix has said it will make the Q5000 available to other customers in the meantime.
Owen Kratz, the president and chief executive of Helix, said in February: “Our expectations are that the vessel will be completed over the next two months, then set sail for the Gulf of Mexico to get ready for BP or perhaps other customers prior to going to BP.”
Robert Byrd, the Vice President of Consulting at TSB Offshore, which specialises in calculating operators’ asset retirement obligations, says that the Q5000 and recently launched vessels such as the Versabar VB 10,000 catamaran will make an impact in the Gulf of Mexico.
“The technology associated with deepwater well P&A work is evolving. With vessels like the Helix Q5000 and what the Wild Well people have and Versabar’s VB 10,000, this is a game changer,” he said.
“The VB 10,000 can pick up a couple thousand tonnes from as deep as 400m, and that does a lot for us in the Gulf of Mexico. It’s come about as a result of all the hurricane damage – that has driven the availability of better heavy lift systems.”
“If you look at what was available before the VB 10,000, nobody else had that capacity apart from the single Saipem vessel – the Saipem 7000 – and Heerema’s vessels. This has broken the hold that companies such as Heerema had on heavy lift vessels.”
Byrd added that the VB 10,000 was much less expensive to operate than previous heavy lift capable vessels, so the rates charged for its use is much lower.
“It is much simpler. If you look at the vessels that Saipem and Heerema have, they’re multifunctional – they do all sorts of construction including heavy lift and pipe laying, they have quarters for 300-400 men and the day rates are $600,000, $700,000 a day,” he said.
Byrd said a multi-service vessel like the Q5000, and larger designs in the Q series that are presently under way, will be able to plug wells “essentially riserless” and with a high level of integrity.
“We’ve had a few meetings in the past year or so with some Shell people and they’re not quite happy with all the things that they do on a vessel like the Q5000 so they would still bring in a rig to do certain things,” he said.
“It’s getting to the point now that they’re able to do most all of the work that Shell would be doing on Brent with a rig. When that technology is fully developed and fully accepted I think that P&A costs will go down by half,” he continued.
Byrd added that the impact of new technology and cheap oil on operators’ decommissioning strategies would become apparent in the next month, as orders were placed for the May to September working season.