Keppel Sees Shallow-Water Projects Supporting Rig Demand amid Lower Prices

Keppel Sees Shallow-Water Projects Supporting Rig Demand amid Lower Prices
Keppel believes oil production in shallow-water basins will support rig demand, but revenue diversification is key to ride out the low oil price environment.

Singapore’s rigbuilder Keppel Offshore & Marine chief executive Chow Yew Yuen believes there are still pockets of demand for oilfield services in shallow-water reservoirs where hydrocarbon production remains economical at a fraction of the current oil prices.

With oil price falling drastically within a span of four to five months from $100 to under $50 a barrel at the turn of the new year, Chow acknowledged global exploration and production activity will slow as oil and gas companies look into cutting capital expenditure

Keppel Sees Shallow-Water Projects Supporting Rig Demand amid Lower Prices
Chow Yew Yuen, CEO of Keppel Offshore & Marine Source: Keppel Corp.

“Some projects will move to the right [or be] put on hold,” Chow told reporters, citing projects in the deepwater basins as potentially among those coming under review.

That will potentially include Petrobras’ pre-salt discoveries off Brazil as other industry sources have indicated.

Bright Spots Exist Despite Oil Price Slump

Even so, Chow remains optimistic that opportunities exist in the Middle East, Mexico, India and the Caspian region.

The oil price thresholds of leading Organization of Petroleum Exporting Countries (OPEC) member nations – Saudi Arabia, Kuwait and the United Arab Emirates – as well as the shallow-waters of Mexico, are much lower than the current $50 a barrel, according to Chow.

Industry observers have echoed Chow’s sentiment, citing $15 a barrel as the break-even oil price in majority of the shallow-water basins falling within the operational limits of jackups.

Ramping up crude oil production will allow the leading OPEC member nations to enlarge their market shares, but for Mexico and India, it will be a necessary step towards ensuring energy self-sufficiency and conserving foreign reserves.

The administration of President Enrique Pena Nieto has already kicked off upstream licensing Round One following the finalization of Mexico’s Oil Reform.

Round One saw the release of 109 exploration and 60 production blocks, including some shallow-water acreage, on offer for foreign oil companies.

The block awards reportedly taking place in stages from as early as the second quarter of 2015, are expected to stimulate rig demand in Mexico.

Keppel’s Plans for Mexico

As a leading jackup builder, Keppel is among the first-movers set on building offshore marine yards in Mexico.

Keppel has reportedly reserved a plot of land in Altamira along the coast of the Gulf of Mexico as well as penned a memorandum of understanding with Pemex Exploracion y Produccion (PEP) – a subsidiary of Petroleos Mexicanos (PEMEX) – for the yard development. The yard agreement was initially tied to a potential newbuild order from Pemex for six jackups.

Without commenting on the status of the newbuild jackup order from Pemex, Chow said Keppel is looking at finalizing the yard agreement with Pemex during the first quarter of 2015.

The current upstream legal framework in Mexico is understood to have stipulated 25 percent of local content execution, which according to industry consultant Wood Mackenzie, is set to increase to 35 percent by 2025.

Keppel will be well-placed to satisfy the Mexican local content requirement once the yard is up and running at Altamira, although the leading offshore marine player has maintained – as with in Brazil – domestic demand would have a bigger part to play in its Mexican yard investment. 

Keppel Jackups Visible in Mexican Waters

The KFELS B Class jackup has already established its footprint in Mexican waters, with half a dozen now drilling for Pemex under charters with drilling contractors.

Keppel Sees Shallow-Water Projects Supporting Rig Demand amid Lower Prices
Caption: Pemex’s Newbuild Yunuen Jackup Source: Keppel Corp.

Pemex has taken delivery of the first of two KFELS B Class jackups it has ordered under a newbuild contract signed in December 2012 with Keppel.

Keppel is building eight further KFELS B Class jackups destined for Mexican waters, including a second drilling unit for Pemex scheduled for delivery in March 2015, according to Chow.

The first of the two Pemex jackups, Yunuen, features a mechanical pipe handling system developed jointly by Keppel FELS and Forum Energy Technologies.

Both Pemex jackups will come equipped with the OTD Forum mechanical pipe handling system, which was developed in line with Pemex’s specification for hands-off pipe handling on board the jackups to enhance operational safety.

Hazy Newbuild Rig Demand Outlook

While a resurgent upstream sector in Mexico may bode well for oilfield services providers, Chow concedes the visibility for newbuild rig demand remains hazy on the back of the projected delivery of over five dozen jackups from China alone from this year.

With the slump in oil price casting a cloud over offshore drilling demand, Chow warns against potential cancellation of jackups placed by speculators in China with no long-term view of operating in the market.

He believes however, Keppel is well-positioned to tide over any slowdown in rig building contracting, with an orderbook of over two dozen jackups on hand lasting through 2016.

The large orderbook gives Keppel more time to develop new niche products that will help deal with the repercussions from any sustained low oil prices.

At the start of 2015, Keppel Shipyard clinched its second floating liquefied natural gas conversion contract from Golar LNG.

The two FLNG conversion contracts valued at over $1.4 billion will cushion Keppel against any slowdown in floating production, storage and offloading vessel conversion activity.

Chow described the FLNG pair as near-shore vessels providing alternative liquefaction solutions for piped gas from onshore terminals. The two Golar FLNGs are being converted from existing LNG carriers.

He also projected a hike in ship and rig repair activity if low oil prices persist.

Lower bunker fuel cost translates to better margins for shipping companies, which will be looking into repairs and upgrading of merchant vessels such as product and cargo tankers, Chow opined.



WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Most Popular Articles