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HOUSTON (Bloomberg) — Big Oil is giving up looking for singles and doubles in the Gulf of Mexico: Now it’s home runs or bust.
Exxon Mobil Corp. and Royal Dutch Shell Plc, the world’s two biggest oil companies, have put a slew of assets in the Gulf up for sale in recent weeks, while Brazil’s state-run Petrobras this week sold the bulk of its production in the region to mid-cap explorer Murphy Oil Corp.
The majors are not leaving the Gulf altogether but they are shifting priorities. They’re using oil’s climb to a four-year high above $86/bbl to offload older assets that are past their peaks to focus on bigger, more profitable discoveries, either in the deepest reaches of the Gulf or unexplored seas elsewhere in the world. The message is clear: Go big or go home.
“When oil was in the doldrums, companies were much happier to sit on assets that performed as expected,†said Oma Wilkie, a senior analyst at RS Energy Group. “But with Brent pushing $80, they can hopefully get top dollar for assets that are OK but not the best in the portfolio.â€
The sales come at a time when production from the Gulf has reached record levels — 1.85 MMbpd– but has been dwarfed by the growth of onshore shale. The region now makes up just 17 percent of U.S. total production, down from 27% a decade ago.
Exxon, Shell and Petrobras may have all put ‘for sale’ signs up but their reasons for doing so are different.
Revamping portfolios
For Exxon, cash is in high demand. The world’s biggest oil explorer by market value is ramping up spending on offshore plays such as Guyana and Brazil in a bid to revamp its struggling upstream division, where production has stagnated and returns lag those of peers. Offloading older assets would boost the company’s average return on equity, a key metric for investors.
Exxon is “testing market interest†for several Gulf assets but “remains committed†to the region, where it also has refineries and chemical plants, the Irving-Texas based company said in a statement Oct. 3.
Shell, which ranks alongside BP Plc as the Gulf’s largest producer, has no plans to leave, having sanctioned giant new projects Appomattox in 2015 and Vito earlier this year. But it is in talks to sell $1.3 billion of Gulf assets to Focus Oil, people familiar with the matter said last month. Shell is looking to pay back debt from its purchase of BG Group in 2016 and invest in new projects such as a massive gas-export complex in Canada.
Shell spokeswoman Kim Windon declined to comment on asset sales. “Deep water is a growth priority for Shell,†she said. “Across the deep water sector in energy, we have an unmatched set of resource options from which to make competitive choices.â€
Crushing costs
Petrobras’s deal with Murphy was all about cash. The Rio de Janeiro-based explorer planned to sell $21 billion in assets by the end of this year, but with less than three months to go and in the midst of a contentious presidential election cycle, the company is still well short of its goal.
The Murphy deal will generate cash and help the company share out investment costs, Petrobras said in a filing. The company’s media-relations department didn’t respond to a request for comment.
For buyers, the attraction of the Gulf is obvious. It provides reliable production, a vast pipeline network and ample access to shipping. Alongside Murphy, private equity-backed names such as LLOG Exploration Co., EnVen Energy Corp. and Ridgewood Energy have been cited as potential buyers.
Costs have fallen dramatically since the 2014-to-2016 downturn, making the Gulf more attractive to new entrants. Rig rates have dropped by half while operators have figured out how to drill wells almost twice as fast as in 2014, according to Wood Mackenzie Ltd.
As such, explorers are moving deeper into the Gulf in the hunt for big new discoveries. Some 25 rigs are under contract in the deepest waters compared with 12 in shallower seas, Evercore ISI said in a note last month. But to make big discoveries in the deep, it helps not to be weighed down by older assets elsewhere.
“It’s about selling assets that still have some meat on bone,†said Imran Khan, an analyst at Wood Mackenzie. “Then you can focus on your core portfolio.â€
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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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