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SMU Report: Permitting delays & new regs stifling offshore drilling

Rig workers, like Robert Cornett, right, pause while mopping the decks on the Hercules 251. (Photo: Smiley N. Pool, Houston Chronicle)

by Jennifer A. Dlouhy

The offshore drilling industry is still rebounding from a five-month moratorium and new regulations after the 2010 Gulf oil spill, with consumers paying the price at the pump, according to a new report being released today.

The findings buck the conventional wisdom about a recent resurgence in offshore drilling that has caused a spike in demand for workers and a run on rigs to drill new wells.

Drilling contractors, including Diamond Offshore Drilling Inc., Noble Corp., and Rowan Cos., say they are seeing strong demand for their rigs. Energy analysts predict 10 more will float into the Gulf this year. And the number of active offshore rigs in the United States was higher at the end of April 2012 than the average total in 2009, the year before the spill (the economic decline had driven down demand that year).

But according to the new analysis, conducted by the Southern Methodist University Cox Maguire Energy Institute, high rig counts, the numbers of federal permits to drill new wells and other positive stats mask problems that could mean suppressed oil and gas production for years to come.

The study was commissioned by the Gulf Economic Survival Team, which has been lobbying for swifter permitting of offshore projects.

Read more: Fuel Fix » SMU Report: Permitting delays & new regs stifling offshore drilling.

Diamond Offshore Orders New Drillship in South Korea

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Diamond Offshore Drilling, Inc. yesterday announced that a subsidiary, Diamond Offshore Drilling Limited, has entered into a turnkey contract with Hyundai Heavy Industries Co., Ltd. for construction of a new ultra-deepwater drillship with delivery scheduled in the fourth quarter of 2014.

Total cost, including commissioning, spares and project management, but excluding capitalized interest, is expected to be approximately $655 million.

The new drillship, to be named Ocean BlackLion, will be of the same design as Diamond Offshore’s three units currently on order with Hyundai. Design specifications include dynamic-positioning, dual activity capability, a maximum hook-load capacity of 1,250 tons, and operating capability at water depths up to 12,000 feet, though initially outfitted for operation at 10,000 feet. The unit will also feature two seven-ram blowout preventer (“BOP”) stacks, with the second available for use as a spare.

Diamond Offshore has elected to equip its previously announced drillships now under construction with an additional seven-ram BOP to improve rig reliability. The cost to add a second BOP is approximately $34 million, bringing the average total price for each of the previously announced drillships to approximately $640 million.

Diamond Offshore also announced today that it has completed the sale of four jack-up drilling rigs in two separate transactions. The Ocean Heritage was sold for $45 million in cash, and the cold stacked mat-supported rigs Ocean Champion, Ocean Crusader, and Ocean Drake were together sold for $10 million in cash; all four units were held for sale in the Company’s first-quarter financial results.

“We are principally a floater company, and during 2012 we have sold five jack-up rigs for a total of $95 million, which is being reinvested in our fleet,” said Larry Dickerson, President and Chief Executive Officer of Diamond Offshore. “We believe this new drillship along with our four additional units under construction—the Ocean BlackHawk, Ocean BlackHornet, Ocean BlackRhino and Ocean Onyx—will be profitably employed in the deep and ultra-deepwater markets.”

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USA: Hercules Offshore Secures Contract for Newly Bought Rig

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Hercules Offshore, Inc. announced yesterday the execution of a definitive agreement to acquire the offshore drilling rig Ocean Columbia from Diamond Offshore Drilling, Inc.

The purchase price is $40 million in cash. Ocean Columbia is a LeTourneau Class 82 SD-C jack-up drilling rig registered and flagged in the Marshall Islands. Subject to customary closing conditions, the Company expects the acquisition to close in May 2012.

“Hercules approached us with an offer to acquire the Ocean Columbia, and we found the terms to be compelling,” said Larry Dickerson, President and Chief Executive Officer of Diamond Offshore. “We are principally a floater company, and this transaction will further augment our funds for potential investments in deepwater and ultra-deepwater assets.”

Saudi Aramco contract

Hercules Offshore also announced that it has entered into a three-year drilling contract with Saudi Aramco for the use of the Ocean Columbia. Over this three-year period, the Company expects to generate total revenues of $160.0 million, including a lump-sum mobilization fee, assuming a utilization rate of 98% for the rig. Under the drilling contract, Saudi Aramco has the option to extend the term for an additional one-year period. Prior to commencing work under the contract, the Company expects to spend approximately $45.0 million for repairs, upgrades and other contract specific refurbishments to the rig and to mobilize the rig from the Gulf of Mexico to the Middle East. The Company expects the rig to commence work under the contract in November 2012.

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CGX Begins Drilling Offshore Guyana

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CGX Energy Inc. has commenced with drilling operations at the Eagle-1 well located on the Corentyne Petroleum Prospecting License (“PPL”) offshore Guyana.

The Eagle-1 well will be drilled to a depth of 4,250 metres to test the Eocene and Maastrichtian geologic zones. The well is being drilled by the Ocean Saratoga semi-submersible drilling rig owned by a subsidiary of Diamond Offshore Drilling, Inc. DO +0.89% , a leading drilling contractor with over 40 years of global drilling experience. Drilling is expected to take approximately 60 days.

Steve Hermeston, President and CEO commented, “Today marks a significant milestone in the history of CGX. We are returning to drill the Eagle prospect that was halted in June 2000 due to overlapping maritime border claims between Guyana and Suriname. Renewed exploration follows over seven years of dedication and co-operation between the Government of Guyana and CGX in resolving the Maritime Boundary between Guyana and Suriname peacefully and finally through the International Tribunal of the Law of the Sea (ITLOS) process. Following the resolution of the maritime border, CGX has shot two-3D seismic surveys, creating a portfolio of prospects on the Corentyne PPL, Eagle-1 being the first well to be drilled to test the original Eocene prospect, plus a deeper Maastrichtian prospect, both of which are stratigraphic tests. The current location will significantly benefit from the 3D acquired in conjunction with advances in better understanding the optimal position to test reservoirs deposited in deep water environments.”

CGX Energy is a Canadian-based oil and gas exploration company focused on the exploration of oil in the Guyana-Suriname Basin, an area that is ranked second in the world for oil and gas prospectivity by the United States Geological Service. CGX is managed by a team of experienced oil and gas and finance professionals from Guyana, Canada, the United States and the United Kingdom.

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USA: Drilling at Eugene Island Starts Next Week, Says Leni

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Leni Gas & Oil plc today announces the imminent arrival of the Ocean Columbia jack-up rig at the Eugene Island Field in the US Gulf of Mexico.

As previously announced in December 2011 the Company has approved additional drilling at the Eugene Island-184 leases operated by Marlin Energy LLC (“Marlin”) where LGO holds a 7.25% working interest.

Marlin has informed LGO that the rig is now being released by the previous operator and it is expected to be mobilized to the Eugene Island platform shortly. The rig move is weather dependent; however, the operator anticipates commencing drilling operations next week.

The first planned operation is the A-2ST01 well, a sidetrack of the existing A-2 well, which targets reserves in the Tex X2 sandstones. A total of 16 days have been budgeted for the drilling and evaluation. Further drilling and recompletions work at EI-184 is expected to follow the A-2ST01 well.

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