Credit crunch also hits offshore drilling rigs

Oct 28, 2008 01:00 AM

by Keith Johnson

Just when the oil industry thought it was safe to go back in the water, along comes the credit crunch.
Tighter credit threatens to delay or kill a big chunk of the offshore drilling rigs under construction around the world. That's bad news for Big Oil, which in recent years has suffered from a dearth of offshore rigs, but which was hoping for some relief in coming years. But it's good news for established drilling operators who find their precious rigs are still in hot demand, and still fetch big leasing rates.

Falling oil prices haven't killed offshore oil drilling (yet), or the demand for rigs. Since they are booked years in advance on long-term contracts, rigs are immune to short-term swings in the oil price. But with global demand for oil tapering off, or even set to fall next year, does the world really need more offshore oil rigs?
Most of the recent oil discoveries have come offshore, such as Brazil's massive Tupi field. Angola overtook Nigeria as Africa's biggest oil producer on the back of its offshore wealth. The US debate over increased oil production centred on the outer continental shelf.

And offshore oil production from new fields is important not just to boost global oil production, but just to tread water. Older, established oil fields from the Middle East to Mexico are declining quickly, and new offshore fields are one way the industry hopes to stanch the decline.
The credit crunch threatens 20 % of the 100-odd rigs currently on order. Newer, smaller drilling operators that jumped into business to meet burgeoning demand are the hardest hit. The effects ripple up the food chain: Brazil's Petrobras, for instance, is counting on rigs from many small operators to start seriously exploiting its offshore finds.

That leaves more established drilling outfits -- such as Transocean, Noble Drilling, and Offshore Diamond -- in good shape for now. Tighter supplies of oil infrastructure should keep their contract rates high, executives say. And many thinkthey can snap up some rigs under construction at knockdown prices.
Now, their only fear is that the credit crunch and economic crisis keep pushing oil prices down-cheap oil makes expensive offshore production an ugly duckling.

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