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UPDATE 3-Rowan says new US regs hurt shallow-water drilling
June 25, 2010 / 2:07 PM / 7 years ago

UPDATE 3-Rowan says new US regs hurt shallow-water drilling

* Apache claims force majeure, first in shallow-water Gulf

* Shallow-water drillers face new permit problems--Rowan

* Rowan shares higher on Friday, up with oil prices (Adds SAN FRANCISCO, analyst comment, background, byline)

By Thyagaraju Adinarayan and Braden Reddall

BANGALORE/SAN FRANCISCO, June 25 (Reuters) - U.S. contract driller Rowan Cos Inc (RDC.N) said on Friday that Apache Corp (APA.N) had declared force majeure for a shallow-water Gulf of Mexico rig, citing permitting delays due to new regulations.

Rowan said two other contracted rigs were awaiting permits and two more were working but not cleared to work beyond their current jobs because of constraints placed on U.S. offshore drillers -- even in shallow water -- this month in the wake of the disastrous blowout of a BP (BP.N)(BP.L) deepwater well in the Gulf of Mexico on April 20.

Rowan received the Apache force majeure notice on June 22, and said it was evaluating its response. The 1982-built jackup rig, Cecil Provine, had been contracted for a daily rate in the low-$60,000 range.

It is not the first force majeure claim due to the U.S. drilling crackdown, but it is the first in shallow water in the Gulf of Mexico. Force majeure relieves a company from liability when it cannot fulfill contractual obligations because of natural and unavoidable catastrophes.

Force majeure claims by Anadarko Petroleum Corp (APC.N) were rejected by two of the rig owners involved, Transocean Ltd (RIGN.S) (RIG.N) and Noble Corp (NE.N). [ID:nN15109023]

Arctic Securities analyst Kjetil Garstad, who now assumes zero income for the Cecil Provine from June 22 through the third quarter, said shallow-water drilling was allowed in theory, but new drilling permits were being stalled.

The U.S. Interior Department’s new rules require offshore drillers to, among other things, certify they have working blowout preventers to avoid oil spills and conduct at least two tests of cement barriers in wells. [ID:nN22154549]

“We are working with our customers to meet these requirements,” Houston-based Rowan said in a regulatory filing with the U.S. Securities and Exchange Commission.


Deepwater Gulf of Mexico drilling is halted until December, but work by jackup rigs -- so called because they stand on legs on the seabed -- had been set to continue, offering relief to at least some of the companies working there. [ID:nN20182158]

But two of Rowan’s nine jackups in the region are already pulled off the market, and were “unlikely to receive new contracts until the issuance of permits resumes,” Rowan said.

Roger Read, an oifield services analyst at Natixis Bleichroeder, pointed out that not all shallow-water wells were the same, and Rowan’s higher-quality fleet meant it was more likely to run into permitting complications than others.

“It’s one thing to drill an 8,000-foot (2,400 m) well in the (continental) shelf, it’s another thing to drill a 28,000-foot well in the shelf,” Read said.

Apache officials were not available for comment.

Hercules Offshore Inc HERO.O, which operates Gulf of Mexico jackups that largely command about half the dayrate of the Cecil Provine, said on Wednesday that three of its 12 active rigs were “ready stacked,” awaiting work.

Rowan said it did not believe its EXL-I rig, contracted to McMoRan Exploration Co MMR.N, or its Gorilla II rig -- client undisclosed -- had permitted work beyond current operations, both less than a month. Apart from the Cecil Provine, Rowan’s Louisiana and Bob Palmer rigs were under contract but waiting on permits.

Two other McMoRan-operated rigs, the Mississippi and Ralph Coffman, were expected to work through their contracted terms. “However, compliance with the new regulatory requirements may result in some interruption of operations,” Rowan said.

Rowan shares were 2.6 percent higher on Friday on the New York Stock Exchange, lifted by a 3 percent rise in oil prices. They have lost a quarter of their value since the start of the BP (BP.L) (BP.N) oil disaster two months ago. [ID:nLDE65O140] (Reporting by Thyagaraju Adinarayan in Bangalore and Braden Reddall in San Francisco; Editing by Vyas Mohan and Prem Udayabhanu, Gary Hill)

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