Norway proposes large expansion of Arctic oil exploration
Norway plans to offer up to 136 new oil exploration blocks in a major new licensing round, of which 125 lie in the Arctic Barents Sea, the country’s Ministry of Petroleum and Energy said on Wednesday. Norway’s 25th licensing round would open eight new regions of the Barents Sea that have so far been unavailable for exploration, each consisting of a range of blocks, and one region of the Norwegian Sea, the ministry added. “A steady supply of new acreage is crucial in order to maintain activity on Norway’s continental shelf,” Minister of Petroleum and Energy Tina Bru said in a statement. “We need new discoveries to uphold employment and value creation,” she said. Oil firms, which must commit to a certain level of drilling activity, tend to pick fewer blocks than the overall acreage made available by the government, however. A hearing on the scope of the licensing round will be held until Aug. 26, after which the number of available permits could be cut, followed by awards some time in the second half of 2021, the ministry said. The 25th round had been postponed by a long-running debate over how far north Norway’s oil industry should be allowed to drill, culminating earlier this year in a compromise that left significant room for additional Arctic licenses.
With contracts canceled and debts mounting, offshore oil drillers face another shakeout
The companies that operate offshore drilling rigs for major oil producers face a second wave of bankruptcies in four years amid a historic drop in energy prices that likely will leave surviving drillers more closely tied to big oil firms. A collapse of the offshore industry will have broad impact. Drillers and their suppliers have driven innovation that has helped shale and offshore wind companies by pioneering remote monitoring and control, and last year directly generated about 25 per cent of global oil production. The offshore services business is the worst performing of the oilfield services sector, with shares of the 10 largest publicly traded down 77 per cent since the start of the year. Four of the seven largest offshore drillers – Diamond Offshore Drilling Inc, Noble Corp, Seadrill Ltd and Valaris Plc – have sought protection from creditors or begun debt restructuring talks that could lead to bankruptcy. Two others are reaching out to their creditors. Pacific Drilling last month said it may need to modify terms of its debt, and was seeking alternative funding in the event creditors would not accept new terms. Shelf Drilling, the ninth largest by revenue, is seeking talks with creditors over loan covenants that take effect next year, executives said. The latest offshore industry’s turmoil “is going to change things in many ways,” Odfjell Drilling Chief Executive Simen Lieungh said in an interview. “Existing players and the existing structures will probably not be there as today,” he said referring to companies scrapping rigs. EARLY OPTIMISM FADES The sector had limped along as exploration fell due to high costs and the advent of cheaper U.S. shale. Then, a flurry of giant discoveries off the coasts of South America and Africa rekindled oil majors’ interest in deep water projects and led to a boom in offshore leases two years ago. Drillers began the year predicting a recovery with oil prices at $60 per barrel. But optimism soured as the pandemic crushed demand and oil prices fell below $20 in April. This month, the number of floating rigs at work is expected to hit the lowest level since 1986 as oil companies cancel or defer contracts, said industry executives and analysts. The last downturn was cushioned by help from oil producers. Between 2014 and 2016, as crude fell to $26 per barrel from over $100, oil majors spread work among drillers to keep exploring off the coasts of Brazil, Mozambique and in the Mediterranean. That allowed drillers whose rig contracts were canceled to pick up some jobs, albeit at lower lease rates. The offshore industry was financially stronger then. Many had entered that downturn with large order backlogs and held contracts with lease rates higher than today’s, said Jorn Madsen, CEO of Maersk Drilling. But with oil majors this year slashing their own spending by between 30 per cent and 50 per cent to preserve cash and pay dividends there is no safety net. Winners will be those companies that get debts refinanced and get through the next two years, said industry officials. Offshore service firms may need to scrap up to 200 of the about 800 existing floating rigs to regain profitable lease rates, said David Carter Shinn, head of analysis for rig brokerage Bassoe Offshore. There is little hope for a rebound in the next few years. Many oil producers are withdrawing from projects that require $60 per barrel to earn a profit, concluding it could be years before they see that price again. Chevron, Exxon Mobil , Petronas and Royal Dutch Shell ended drilling contracts early this year to save money. “Higher cost production in our industry will be shut in and projects will be delayed,” said Rick Fowler, chief operating officer at U.S. offshore oil producer LLOG Exploration. Chevron said it will limit offshore work to fields that connect to existing infrastructure rather than start new exploration. Exxon, BP, Total and Shell declined to comment or did not reply to requests for comment on the impact on their drilling plans. The abrupt halt of exploration has been devastating to drillers. They are writing down billions of dollars on the value of their fleets. Finding new money will be difficult, said Basil Karampelas, a managing director at SierraConstellation Partners who advises companies on financial restructurings. Bankruptcy investors evaluate companies on 13-week or 26-week cash flows in making decisions, he said. But for many drillers, there will be little to show. Creditors, he said, “will have to decide if they want to ante up to get past that period.” THE PATH AHEAD Many of the offshore drillers are scrapping or retiring vessels, having concluded it may be years before they are needed again. Valaris plans to scrap 11 rigs and put aside nine others, estimating it may take two years before they are needed again. Seadrill, which slipped into bankruptcy in 2017 after the last oil price downturn, pioneered a model for sharing costs that might prove a path forward, said analysts. It formed joint ventures with customers including a Qatar Petroleum spinoff and Sonangol Group that have survived the last downturn. The joint ventures focused on oil fields that have long lives and gave drillers a way to lower their contract risks. The Seadrill ventures “have delivered increased fleet utilization and incremental access to markets that are expected to show significant growth over the coming years,” Seadrill spokesman Ian Cracknell said. “It could be one of the few options to move forward,” said William Turner, a vice president at Welligence Energy Analytics. “There is not a lot more folks can do to lower costs, especially in deepwater. They are going to have to get creative to survive,” he said.
Government aims to develop indigenous, low carbon transport system: Nitin Gadkari
Union Road Transport & Highways Minister Nitin Gadkari on Tuesday said that the Central government has prioritised the development of indigenous, low carbon, sustainable and economically viable transportation system. In his address at the launch of ‘India Roadmap on Low Carbon and Sustainable Mobility (Decarbonisation of Indian Transport Sector)’ report by Ficci, he said that the priority of the government is to develop such a pollution-free and cost-effective transportation system, which also provides comfort to the poor people of the country. Gadkari also said the government will play the role of a facilitator and support the private sector in its initiatives for developing a sustainable transportation system. He said that the industry should consider various aspects of sustainable transportation system which comprises of low carbon fuels, electric vehicles, water transportation, conversion of diesel vehicles to LNG and CNG, and use of ethanol, methanol and hydrogen fuels for vehicles. Subsequently, industry should then reach out to state governments and ministries concerned and suggest changes in the policies for developing implementable and economically viable projects, he said. Besides, Gadkari said that the industry should look at public private partnerships and adopt an integrated approach for developing new models of transportation. He also pointed out the need to decongest metro cities and urged industry to create industrial clusters and smart cities. He added that to decrease migration of rural population to urban areas, there is a need to concentrate on upliftment of agriculture sector, tribal and village population.
Hungary agrees gas deal with Gazprom, views long-term agreement
Hungary has agreed to buy 6.2 billion cubic metres of natural gas from Gazprom and will begin talks on a flexible, long-term gas supply agreement with the Russian energy firm, Foreign Minister Peter Szijjarto told state news agency MTI late on Tuesday. “Our goal is to sign three five-year deals, which allows cancelling the agreement at the end of each five-year period,” Szijjarto said. “This ensures our long-term supply and also our ability to renegotiate the agreement or quit if in the meantime better options arise or the international energy market changes.” Hungary has worked to diversify its gas supply both in terms of source and routes away from the traditional Russian shipments via Ukraine, but progress has been slow as alternative pipeline networks have not been completed. Hungary will buy up to 6 billion cubic metres of gas per year via an extension to the TurkStream pipeline once it is completed in October next year, Szijjarto said. In the meantime, Hungary has agreed to buy 2 billion cubic metres of gas from Gazprom, with shipments already under way, and another 4.2 billion cubic metres to be delivered between October 2020 and October 2021, the minister said.
Gas industry sees strong demand post-COVID, LNG shortfall by mid-decade
The gas industry sees no change to the strong long-run outlook for demand following the COVID-19 crisis, but expects a supply shortfall in the next four years as the pandemic lockdowns and oil price collapse lead to delays on gas projects. Gas producers, buyers, liquefied natural gas (LNG) developers and a major contractor said in the long run the fuel will be needed to back up wind and solar power, replace coal-fired power, and produce hydrogen globally. “We see the need for substantial investment in new projects and new liquefaction,” Exxon Mobil Corp’s Australia Chairman Nathan Fay said at Credit Suisse’s annual Australian Energy Conference. However, lingering uncertainty following a crash in LNG prices to record lows this year below $2 per million British thermal units (mmBtu) means only the lowest cost LNG projects will go ahead, major producers said. More than 140 million tonnes of projects worldwide have been deferred. In Australia and Papua New Guinea alone, five are on hold – Exxon’s expansion of PNG LNG twinned with Total SA’s Papua LNG, Woodside Petroleum’s Scarborough and Browse, and Santos Ltd’s Barossa. “It’s everything to play for – so a very bullish outlook on gas,” said Martin Houston, vice chairman of U.S. LNG developer Tellurian, which recently deferred a final investment decision on its U.S. Driftwood LNG project to 2021. Japan’s Chiyoda, a major contractor to LNG projects, said work has largely dried up and there would need to be stability in the market before developers move ahead with projects. “To be perfectly honest, we don’t see any green shoots right now,” said Chiyoda Oceania’s president Andrew Tan. Royal Dutch Shell sees short term concerns weighing on everyone’s decisions about new projects. “I’m sure all companies, all operators or producers across the globe are going to be focused on that affordability question just because of the uncertainty they see in the macro markets,” said Shell Australia Chair Tony Nunan. Research firm Rystad Energy said with gas prices around the world still trading near $2 per mmBtu, LNG developers with all but the lowest costs will hold off on new projects. “But that will again cause a shortfall for the LNG market four or five years down the road,” Rystad’s head of analysis, Per Magnus Nysveen told the conference.