Keppel Sees Shallow-Water Projects Supporting Rig Demand amid Lower Prices
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
“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.
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.
- Falcon Oil Declares Commercial Flow Test Results for Shenandoah Well
- Macquarie Strategists Expect Brent Oil Price to Grind Higher
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- Pennsylvania County Joins List of Local Govts Suing Big Oil over Climate
- UK Oil Regulator Publishes New Emissions Reduction Plan
- PetroChina Posts Higher Annual Profit on Higher Production
- US, SKorea Launch Task Force to Stop Illicit Refined Oil Flows into NKorea
- McDermott Settles Reficar Dispute
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- USA Commercial Crude Oil Inventories Increase
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Oil Demand Outpaces Expectations, Testing Calculus on Peak Crude
- House Passes Protecting American Energy Production Act
- TotalEnergies Restarts Production in Denmark's Biggest Gas Field
- USA Oil and Gas Job Figures Jump
- Republican Lawmakers Say IEA Has Abandoned Energy Security Mission
- Blockchain Demands Attention in Oil and Gas
- Houthis Warn Saudi Arabia of Retaliation If It Backs USA Attacks
- Macquarie Sees USA Oil Production Exiting 2024 at 14MM Barrels Per Day
- Summer Pump Prices Set to Hit $4 a Gallon Just as Americans Hit the Road
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Chinese Mega Company Makes Major Oilfield Discovery
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Another Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Vessel Sinks in Red Sea After Missile Strike
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Equinor Makes Discovery in North Sea
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension