Offshore contractors adjust rig fleets on Brazil woes

Sept 19 Thu Sep 19, 2013 6:55pm EDT

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Sept 19 (Reuters) - The once-promising Brazilian offshore oil market is proving a thorn in the side of drilling contractors who are either leaving it or trying to shift some of their rigs elsewhere, according to fleet updates out this week.

The rigs in question are older and less capable than the newer ultra-deepwater models currently in high demand worldwide, and the availability of more standard "deepwater" rigs on the market will only add to concerns about downward pressure on rates paid for that class.

Transocean, owner of the world's largest offshore rig fleet, said it had agreed with state-controlled oil company Petrobras to suspend as of Sept. 5 their contract on the Sedco 710, which will now be "stacked" - or pulled off the market until it is needed again.

"The company is currently in discussions with the customer regarding the remaining contract backlog on the rig," Transocean said in a note with its fleet status update late on Wednesday. A Transocean spokesman declined to comment further.

Based on a rate of $284,000 per day running until September 2016, the Sedco 710 had a remaining backlog of about $300 million left on the contract.

An analyst at Houston-based securities broker Tudor Pickering Holt called the move by Petrobras "worrisome."

Petrobras, the world's largest offshore operator, has faced increasing difficulty financing its $237 billion, five-year investment plan, the world's biggest corporate spending program. Government refusal to let the company charge market prices for fuel in Brazil has crimped revenue, while delays developing giant new fields and declining output from old fields has seen output stagnate, forcing the company to increase debt.

A weaker real against the U.S. dollar has squeezed the company further as it requires more of its shrinking domestic fuel revenue to pay debt denominated primarily in dollars. To ease the problem, Petrobras has been selling assets worldwide and trying to reduce costs. [ID: nL1N0GA1TI]

Petrobras did not immediately respond to phone and e-mail requests for comment.

On Thursday, contractor Diamond Offshore Drilling Inc said that debt-laden OGX Petroleo e Gas SA was "delinquent" on payment obligations for the Ocean Quest rig and that Diamond had the right to terminate the contract.

OGX is part of Brazilian tycoon Eike Batista's crumbling EBX Group energy, mining, shipbuilding and port operation empire. Failure to meet production targets from its first offshore field in 2012 caused the group's market value to fall by more than 90 percent. [ID: nL2N0GU1R4]

"We are pursuing other contracting opportunities to substitute for OGX if the contract is terminated," Diamond said in its fleet status report.

Diamond said its Ocean Star was already sublet to Queiroz Galvao for rest of its contract with OGX, which owed Diamond $22.7 million as of June 30 and was on the hook for $36 million this quarter - all of which is currently unpaid.

Transocean and Diamond are not the only rig contractors to adjust their Brazilian presence. On Tuesday, rival Ensco Plc revealed that it was now going to stack its Ensco 5000 - previously under contract with Petrobras - in South Africa.

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