Floating Rigs Lose out Amidst Oil Surplus

Published Date : Feb 26, 2016

Floating rigs were created as a result of the growing pressure on the oil and gas sector to produce more. As the companies are pushed to explore deep-water oil resources, they had to use less conventional rigs. This gave birth to the floating rig, which is essentially buoyant and partly floating while partly anchored to the sea bed. Modern floating rigs even make use of computerized thruster that can help keep it in place on rough waters. Typically, floating rigs are employed for depths between 600 feet to 6,000 feet, as seen commonly along the Gulf of Mexico.

Oil Overproduction Could Drive Deep-water Rigs Out of Business 
One of the biggest problems faced by the oil and gas industry’s offshore sector is the current oversupply of oil around the world. As crude prices keep falling while supply keeps ramping up, the business for offshore vessels and rigs keeps reducing. For instance, Transocean recently announced the termination of one of its rigs, the Esso Exploration Angola. The rig was an Exxon Mobil subsidiary. The rig was maintained under contract which was valid till June 2017 and will not qualify for an early termination payment owing to an uncompensated contract.

In another similar instance, Seadrill Ltd. is attempting to get through its worst market slump using cost cuts in all places possible. The CEO of Seadrill, Per Wullf, said that the savings made through cost cutting will cross US$200 mn, which was the target set in November. This will add to the over US$600 mn in savings that were earned in 2015. The cost cutting measures are being taken in order to avoid running out of business in between the drop in oil prices which have been occurring over the past 18 months.

The falling rates of crude have further taken their toll on the overall investments in the offshore oil rig markets, subsequently increasing the number of idle rigs and forcing many small and medium sized owners to shut shop and scrap their equipment to save themselves.