Customers Keeping GOM Drilling Contracts Despite Easy Ways Out -Newman

NEW ORLEANS (Dow Jones Newswires), March 28, 2011

A third of Transocean's $6.6 billion Gulf of Mexico contract backlog could be canceled with little financial risk to the driller's customers, said Chief Executive Steven Newman.

Gulf of Mexico contracts worth about $2.2 billion "do not have significant financial disincentive(s)" that would prevent customers from canceling the agreements, Newman told investors during a conference here.

"The fact that they haven't done so is an indicator of the strong relationships we have with our customers," Newman said.

It also shows that oil companies have not cooled to Gulf of Mexico exploration despite the six-months-long moratorium on deep-water drilling imposed by U.S. regulators after the deadly Deepwater Horizon disaster and the difficulty of obtaining drilling permits that has followed the lifting of the official ban.

So far U.S. offshore regulators have issued drilling permits for six deep-water wells since Transocean's Deepwater Horizon exploded in April, killing 11 and touching off the worst offshore oil spill in U.S. history. Each of those permits have been issued since Feb. 28.

Newman said Transocean, owner of the world's largest offshore rig fleet, expects to have 13 rigs active in the U.S. Gulf by years' end. Most of those rigs already meet new safety and environmental regulations implemented in response to the spill, he said.

The Deepwater Horizon disaster and subsequent slow-down in Gulf drilling has cast a pall over deep-water drilling worldwide, Newman said. But the outlook is beginning to brighten, he said.

"As permits start to emerge, as customers remain focused on executing their activities in the Gulf of Mexico, as they talk about having to increase activity to make up for time they lost in the moratorium, we're staring to see that cloud, the perception of oversupply diminish," Newman said.

Newman said he is also optimistic about emerging ultra-deep-water plays off of Liberia, Sierra Leone, Ivory coast will become a "meaningful third market in addition to Angola and Nigeria" as well as in East Africa, the Black Sea and India.

Copyright (c) 2011 Dow Jones & Company, Inc.

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