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Despite booming shale oil production in the U.S., expectations of more Russian and Saudi oil, and repeated warnings that a trade war will dampen economic growth and thus demand.
In some ways, this is the perfect storm, with production problems in Libya and Venezuela coincidentally occurring at a time of strong demand and stagnant non-OPEC production (excluding U.S. shale oil). In this, the situation resembles that of 2003/4, when problems in Iraq and Venezuela combined with strong economic growth sent prices on their way to triple digit levels. Coming after the 1998 oil price collapse constrained upstream investment, the surge in prices seemed irresistible.
To some degree, fears that an increase in Saudi production will mean less spare capacity available for emergencies appear illogical. Better for the oil to be produced now, then to leave it in the ground. But what matters is whether the Saudi oil improves the market balance (and goes into inventory) or replaces lost supply, especially from Iran. In the latter case, which appears likely at present, the market does become more vulnerable to further supply problems. If the Iranians do manage to maintain export levels, then the Saudis will be reducing the strain on the market.
Considering that energy security for years focused on the potential for large-scale supply disruptions (war in the Arabian/Persian Gulf, for example), the fact that the supply losses are individually small but in total significant is surprising. The problems in Libya, Syria and Yemen may be loosely connected (due to the Arab Spring uprising), but the others are completely unrelated. Production declines in Nigeria and Venezuela are due to internal political conflicts, and the possible loss of Iranian supply the result of a dispute with the U.S. government. South Sudan’s production has been shut in by civil war.
Also at play is the “law of interconnected monkey business†(described in Aaron Elkin’s series on Gideon Oliver, the skeleton detective). Not all supply problems are unrelated to market developments, especially when union workers are involved. Workers’ leverage is at its maximum when markets are tight, so it is not surprising that both Gabon and Norway are seeing labor actions. The amounts involved are relatively minor, adding insult to injury—but the impact is magnified by market conditions.
For those trying to predict the future price path, this combination is particularly aggravating. It is much easier to predict OPEC decisions than the political developments in Iran, Libya, and Venezuela which are not connected to each other or the oil market, but also have different timing effects.  It will be months before it is clear whether or not Iranian sales are maintained, Libyan production could recover very quickly (or be significantly delayed), and Venezuela might, with foreign assistance, stabilize its supply.
It may be coincidental that all of these are occurring simultaneously, and a similar coincidence could see most resolved in the next few months, but that would be quite the coincidence. As long as the global economy remains strong and spare production capacity slight, expect that every bit of negative news, such as the formation of an Atlantic hurricane, will boost prices. Relief before fall does not appear to be in the cards.
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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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