Sarah Parker Musarra
NICOSIA, Cyprus and NEW YORK – Eni has terminated its contract with Ocean Rig UDW Inc. for the ultra-deepwater Ocean Rig Olympia drillship. The rig provider said that the Italian company had reassessed its drilling activities and moved to terminate the contract “due to the dramatic fall of the crude oil price and the volatile market context.”
CNBC reported that US crude prices fell to below $27/bbl on Jan. 20, for the first time since 2003, and noted that oil had fallen more than 25% so far in 2016. The volatility triggered a slump in international financial markets.
Ocean Rig announced in May 2015 that Ocean Rig Olympia had entered into a new contracted with Eni to drill offshore Angola. Work was to begin in 3Q 2015 for a minimum of eight months with a total contract backlog of about $91 million.
The DP-3 class Ocean Rig Olympia was built at Samsung Heavy Industries’ South Korean shipyard. The 2011-build is designed and equipped for drilling in water depths from 500-3,000 m (1,640-10,000 ft).
According to an update on the transaction provided by Evercore ISI’s Oilfield Services, Equipment & Drilling group, Eni’s decision reduces Ocean Rig’s backlog by an estimated $49 million.
Evercore ISI’s James West said: “We had previously assumed the rig would experience one year off rate beginning early June following contract rollover. However, we now model the rig to be cold-stacked through 2017, per comments in October [indicating] the Olympia would be cold-stacked if no employment was found.
“We then model the rig to work at 50% utilization at around a $350,000/d rate beginning 2018.”
The analyst firm also looked into the rest of Ocean Rig’s newbuilds. The company is currently one of the most highly contracted offshore drillers, behind only Rowan, with about 71% contract coverage this year and around 48% coverage next year. However, Evercore ISI believes delivery of the Ocean Rig Santorini deepwater drillship, currently set for 2Q 2017, could be postponed further to delay the $259 million payment due this year.
Additionally, West said that delivery for the dual-activity MODU/drillships Ocean Rig Crete and Ocean Rig Amorgos are likely to be further postponed. The vessels’ delivery dates were scheduled for 1Q 2018 and 2Q 2019, respectively.