Energy Journal: The Big Business of Big Rigs

BIG RIG BUSINESS

It’s a good time to be in offshore oil rigs. High oil prices have encouraged exploration and industry data from Rigzone shows 85% of the world’s rig fleet is now being used, even as more rigs are working.

The geography of oil drilling means demand is spread far and wide—from Brazil, currently the most active region where a new round of deep-water exploration will increase demand further, to Southeast Asia by way of the North Sea and the Persian Gulf.

The high fleet utilization is good news for rig owners. Leasing deals, where costs are calculated by the day, are running at historical highs as strong demand calls for new, deeper-water vessels to be built to the latest specifications.

These can cost more than $500 million each, but a deal offshore Africa shows Total is paying almost $700,000 a day to hire a new ultradeepwater drill ship from Greece’s Ocean Rig company.

The expected demand from Brazil, after its licensing round creates new prospects, could push these rates higher still.

Meanwhile back on shore, some of the world’s largest oil service companies are reporting strong global demand for rigs in the Middle East, China and Australia, as The Wall Street Journal’s Alison Sider explains. In Russia, an ambitious plan to replace Soviet-era drill rigsin preparation for shale drilling could cost $9 billion.

But as John Dizard writes in the Financial Times, a drop in the oil price leads to a corresponding drop in rigs being used. As long as crude stays at current elevated levels then the outlook for rig building is positive.

EUROPEAN POWER FAILURE

It’s a bad time to be in the European utility business. Have a look at this huge write-down at Sweden’s Vattenfall Group.

The state-owned business, like many of its peers, invested heavily in other countries during a period of intensive deregulation. Now demand is low as the European economy chugs along, and many of the decisions made before the downturn are coming back to bite.

Germany’s biggest power companies, RWE and E.ON, have predicted a bleak outlook after being caught flat footed by the country’s shift out of nuclear into renewables.

Meanwhile in Spain the renewables industry is feeling the heat of subsidy cuts. There are now incentives to close down renewables plants and that make it cheaper to buy power from the grid than from solar panels on the roof, pvtech reports.

British economist Nicholas Stern, who penned a landmark 2006 report on climate change, believes a Europewide supergrid could solve these industry problems. But as he points out here, this will involve the sort of strong, collective decision making that the European Union hasn’t taken since the economic crisis knocked its confidence.

OPEC EARNINGS SHOW POWER LINES

The U.S. Energy Information Administration, which is one of the world’s great repositories of oil-market information, estimates that net oil export earnings for OPEC nations increased 5% in 2012, to a record $982 billion.

The figures pointedly exclude Iran, which despite the sanctions on its oil exports remains one of OPEC’s leading members.

But these figures do demonstrate the dominance of Saudi Arabia with OPEC—some 32% of the group’s total export earnings, or some $311 billion, flooded into Riyadh’s coffers in 2012. No surprise then that the Saudis are making hay while the sun shines.

On the other end of the scale is poor old Nigeria, where disappearing export markets mean the value of its crude-oil exports tumbled 19% in the first three months of the year, as Sarah Kent reports for Dow Jones Newswires.

MARKETS

Brent crude oil futures were slightly lower in London trading Wednesday with WTI prices creeping back up closer to parity once again, as market anticipates further drops in U.S. crude stocks.
By Ben Winkley

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