UBS: Petrobras to cut more rig contracts

New cuts to ultradeepwater drilling plans by Petroleo Brasileiro SA (Petrobras) aggravate strains on the Brazilian holding company Sete Brazil and on the offshore drilling industry generally, according to UBS Securities LLC.

Citing press reports, UBS says the state-owned oil company has proposed to enter contracts for only 10 of the 29 ultradeepwater rigs it originally ordered through Sete. Seven of those contracts were cancelled late last year.

For surviving contracts, UBS says, Petrobras seeks shorter terms and 30% reductions in day rates.

UBS calls the move “a clear foreshadowing for the offshore drilling industry and longer-term demand from the region.”

In addition to hurting Brazilian shipyards and their suppliers, the Petrobras cuts increase reported pressure on Sete to enter bankruptcy or restructure.

All seven cancellations last year were drillships, as are all but one, a semisubmersible, of the 12 expected cancellations, according to UBS.

Surviving contracts are for five semis and five drillships.

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