July 9, 2010 / 4:50 PM / 9 years ago

UPDATE 2-Diamond moving deepwater rig out of Gulf of Mexico

* First deepwater rig to leave due to U.S. moratorium

* Rig being moved to Egypt at cut rate of $225,000/day

* After force majeure claim, Devon buys out of contract

* Diamond shares down 2 pct; other drillers also off (Adds Diamond and analyst comments, byline; updates shares)

By Braden Reddall

SAN FRANCISCO, July 9 (Reuters) - Diamond Offshore Drilling Inc (DO.N) is pulling one of its deepwater rigs out of the Gulf of Mexico, in the first such move resulting from uncertainties surrounding a U.S. moratorium on deepwater drilling.

Diamond said on Friday the Ocean Endeavor rig, which had been contracted to earn about $290,000 per day from Devon Energy Corp (DVN.N) in the Gulf of Mexico, will move to Egypt under a new deal with Burullus Gas Co running until June 30, 2011, when the Devon contract would have ended.

The new dayrate is only $225,000; but a Devon payment of $31 million to get out of its contract means the implied rate is close to the old price, said a spokesman for Diamond, the second-largest drilling contractor by market value.

“We are actively seeking international opportunities to keep our rigs fully employed,” said Larry Dickerson, chief executive of Houston-based Diamond. “We greatly regret the loss of U.S. jobs that will result from this rig relocation.”

Despite legal tussles over contracts, few analysts expect an exodus among the more than 30 deepwater rigs in the Gulf of Mexico so long as they can resume work later this year. Drilling has been halted due to BP Plc’s (BP.L) well blow-out. [ID:nN28271791]

UBS analyst Angie Sedita said the sharply lower dayrate for the Endeavor showed rig pricing globally will remain under pressure for six to nine months, until rig contractors get more clarity on the Gulf of Mexico situation and rates stabilize.

MEDIUM-TERM NEGATIVE FOR DRILLERS

Diamond shares were down 2 percent in afternoon trading on the New York Stock Exchange, with rig companies generally trading lower despite an appeals court refusing on Thursday to back a U.S. government halt of deepwater drilling. A revised U.S. deepwater moratorium has been promised. [ID:nN08205746]

Shares of Switzerland-based offshore driller Noble Corp (NE.N), which is caught in a Gulf of Mexico rig dispute of its own with Anadarko Petroleum Corp (APC.N), fell more than 4 percent.

Bernstein Research analyst Scott Gruber said the Endeavor contract represents a near-term gain for Diamond but a medium-term negative for the sector, by adding capacity to the international rig market with rates already under pressure.

"Devon's decision reflects its move away from offshore production, but the rising tide of rig departures is cause for concern in both the deepwater and jackup markets, despite recent favorable court rulings for the industry," Gruber wrote in a note to investors. [Graphic link.reuters.com/tyq42m]

Murphy Oil Corp (MUR.N) and Cobalt International Energy Inc CIE.N have also sought to annul Diamond contracts because of the moratorium. Diamond has rejected their force majeure claims, which can let companies out of contracts due to events beyond their control. [ID:nN02198779]

In addition to the Noble rig, Anadarko claimed force majeure on a Diamond rig in the Gulf of Mexico, as well as for a contract with Transocean Ltd RIGN.VX(RIG.N), the Swiss owner of the now-sunken rig that drilled the doomed BP well. (Reporting by Braden Reddall; additional reporting by Joshua Schneyer; editing by John Wallace and Gerald E. McCormick)

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