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Saudi Arabia has turned its oil market fortunes around over the past 1 ½ years. From facing potential financial collapse due to a historic supply overhang of crude on the back of U.S. shale oil production and Riyadh’s late 2014 decision to turn on the oil production spigot to flood markets, retain market share and drive prices to the ground to force non-OPEC, mostly U.S. producers, out of business, the OPEC de facto leader cleverly formed a new partnership with Russia to get its oil market swagger back.
In essence, what the Saudis and a collective OPEC for that part could not do, it overwhelmingly achieved with Russian and non-OPEC help. OECD oil inventory levels dipped to five year averages recently, oil prices have reached multi-year highs and the Saudis are back where they are most comfortable, seemingly in the business of calling the shots in global oil markets, even promoting President Trump to use twitter to appeal to the Saudi oil production apparatus to curb rising oil prices – a development that as recently as a year ago most market observers thought would never happen again given the surge in US oil production.
All of this posturing and re-posturing hasn’t been lost in Asia, particularly in China, the world’s largest energy consumer and largest crude oil importer. There have been stark disagreements recently between Saudi Arabia and Chinese state-run oil major Sinopec, one of Saudi Aramco’s biggest customers and Asia’s largest refiner, over Saudi oil pricing.
In April, Sinopec, apparently exasperated at Saudi price increases, said that it would reduce Saudi oil import loading in May by 40 percent due to Saudi Aramco increasing the price of its flagship Arab Light Crude sold to Asian refiners. Saudi Arabia produces a range of crudes ranging from Arab Extra Light to Arab Heavy and prices each blend accordingly.
Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices. Arab Light Crude had already been trading near three-year highs, even as the state-owned oil giant had lowered official selling prices (OSPs) for medium and heavier crude grades. (continued on page 2)
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New oil pricing formula
Now, Saudi Aramco is changing the formula it uses to price its long-term crude oil sales to Asia in a move that analysts say is aimed at improving the overall reliability of its pricing.
The state-owned Saudi oil giant said on Wednesday that the move represents the first change to benchmarks for its OSP since the mid-1980s. Saudi Aramco’s new Asia price marker will replace the Platts Oman marker with Dubai Mercantile Exchange (DME) Oman effective Oct. 1, 2018, creating a hybrid between two major Asian price benchmarks.
Ahmed Subaey, Saudi Aramco’s vice president of marketing, sales and supply planning said the inclusion of the DME Oman price complements the existing Platts Dubai price to provide the company’s customers with better visibility into price dynamics. Transparency and even trying to understand Saudi Arabia’s oil price formulations have been a point of contention for its customers for years.
Subaey added that the idea behind the change was to make sure the marker was market-reflective, well-regulated and predictable. Saudi Aramco’s new price benchmark could also not only signify a good will gesture to its Asian oil buyers, particularly China, but it will also help the country hold and possibly regain market share against a host of other competitions, including Russia, Iran, the U.S. and others.
Moreover, with the possibility that China will make good on its threat to impose tariffs on U.S. oil imports as well as the possibility that Iranian oil imports to China could be impacted by upcoming renewed U.S. sanctions against Iran, it’s also a timely move to capture market share in the case of these possible eventualities.
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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