These are not pretty times to be living in

what can we be thankful for today other than low prices at the pump?..did anyone really see this coming? when and how will this situation turn around?

[B]Seadrill Shares Tumble as Dividend is Cut[/B]

By Reuters On November 26, 2014

OSLO, Nov 26 (Reuters) – Seadrill suspended dividend payments on Wednesday to help it weather a slump in offshore drilling rig market rates, sending its Oslo-listed shares down by as much as 18 percent.

Seadrill, controlled by shipping tycoon John Fredriksen, said it needed to save cash as financing for its large orderbook of new vessels is becoming more difficult to obtain while rivals are depressing charter rates.

Investors expected the dividend to be cut by a third, not completely eliminated, and the share price fall pulled Seadrill down from being the world’s biggest rig firm by market capitalisation to bring it alongside Transocean.

The shares were down 12 percent at 124.50 Norwegain crowns by 1040 GMT.

“The absence of dividend will re-price the share down to peer multiples,” brokerage Platou said in a note to clients. “We expect a significant sell-off from yield investors.”

Shares in both Seadrill and Transocean are down close to 50 percent this year as energy companies delay or cancel projects, trying to save cash after oil prices fell by 30 percent since June, threatening the viability of many deepwater developments.

The market fall has been exacerbated by an oversupply of new vessels, ordered during the boom times and set to be delivered just as rates are plunging to multi-year lows.

“With approximately 25 percent of the (global) ultra-deepwater fleet available in 2015, certain rig owners seem willing to work at or close to cashflow break-even rates and we expect this type of activity to continue in the short term,” Seadrill said.

Rig rates, which peaked at $650,000 per day in 2013 for top specification deepwater units, are now below $400,000 per day and the market is expected to be weak for years to come.

“One of the few remaining attractive features of the drilling space was dividend payments,” Nicholas Green a senior analyst at Bernstein Research said.

“Having a dividend cut is a concrete sign that things are as bad as people fear … it’s another confirmation to how hard it is out there to be an offshore service provider today.”

Seadrill has 16 rigs under construction with $4.7 billion of yard payment installments still due and the firm said it hoped to save $2 billion a year from the dividend cut. It said it could still buy back up to 10 percent of its shares, if market conditions allowed.

Seadrill’s third-quarter earnings before interest, taxes, depreciation and amortisation met expectations, falling 4 percent to $635 million in the quarter.

© 2014 Thomson Reuters, All Rights Reserved

Is the Bakken production really what is causing the price of oil to fall so precipitously? Not good for expensive to produce deepwater oil.

US shale is a lot more than Bakken. Its also big production from Permian Basin and Eagle Ford, among others. Not to even mention gas fields. I have read some material suggesting that most Bakken wells need $70/bbl oil and other material saying that many wells could live with $40. Continental Resources, the biggest Bakken player, is betting that oil prices have bottomed out by selling all of their options and derivative contracts (which are used as a “hedge,” or “insurance” against falling oil prices. They made big profits on the sales of those contracts too. Friends working at Bakken are going flat out with a severe shortage of labor. They have been told that they cannot have any time off for Christmas.

A significant percentage of the market price of oil is manipulation and speculation. All those speculators on Wall Street, London, etc. add to the cost of oil.

It looks like Japan and much of Europe is slipping back into recession. The situation in Russia is not looking good.

Deepwater drilling and support services, like mudboats, grew too fast on a cost is no object E&P spending spree. Shareholders in the oil majors were demanding cuts in Capex spending and larger dividends long before the price of oil dropped. With the oil price drop, high cost deepwater drilling has been hit with a double-whammy. The industry now faces a period of “rationalization.”

Yup. That about says it

Equilibrium at 70-75 per bbl.

Could’a been working even time on a yacht for 1000 - 1300 a day on that unlimited ticket, but no one was paying attention when that was posted …
Oh well, they aren’t slowing down yet.
Seems that sector is headed on the way up, not for lay up.

Just poked my head out as we passed through transoceans “stack yard” out by the loop. Not a pretty sight. I’m just glad I have a towing endorsement and bailout plans in place if needed…

here’s another interesting article

[B]Oil Bust of 1986 Reminds U.S. Drillers of Price War Risk[/B]

By Bloomberg On November 26, 2014

By Asjylyn Loder

Nov. 26 (Bloomberg) — The last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans.

In 1986, the Saudis opened the spigot and sparked a four- month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.

So while no one expects the Saudis to ramp up output now like they did then and U.S. shale oil companies are pledging to keep drilling regardless, the memory of that bust looms large for American industry executives on the eve of OPEC’s meeting tomorrow. As the Saudis gather with officials from the 11 other OPEC nations in Vienna, analysts are split on whether the group will cut output to lift prices or leave production unchanged to fight for market share with shale drillers.

“1986 was the big price collapse and the industry did not see it coming,” said Michael Lynch, president of Strategic Energy and Economic Research in Wakefield, Massachusetts, who has covered the oil sector for 37 years. “It put a lot of them out of business. You just don’t forget it. It’s part of the cultural memory.”

The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world’s output, pumped 31 million barrels a day in October, exceeding its official target of 30 million.

Declining Prices

West Texas Intermediate, the U.S. benchmark contract, rose 8 cents from the lowest price in more than four years to $74.17 a barrel in electronic trading on the New York Mercantile at 6:28 a.m. New York time. Brent, the marker for more than half of the world’s crude, gained 19 cents to $78.52.

“Someone has to blink,” said Sarah Emerson, managing principal of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. “OPEC is saying ‘Does it really have to be us?’”

Saudi Arabia wasn’t the first to blink in 1986. The kingdom had been the world’s swing producer for years, boosting output when prices rose and scaling back when they dropped. As fellow OPEC members pumped more crude, the kingdom’s production fell to 3.175 million barrels a day in 1985 from more than 9 million in 1981, according to data compiled by Bloomberg. That left the country facing a growing budget deficit, according to Daniel Yergin’s Pulitzer Prize-winning book The Prize.

Market Share

In December 1985, Saudi Arabia declared its intention to regain market share and oil prices began to decline, sinking to as low as $10.42 a barrel in March 1986 from a November 1985 peak of $31.72.

OPEC reached a new production-sharing agreement in December 1986. By then, the damage to U.S. producers had been done. Unemployment in Oklahoma rose to 8.9 percent and in Texas to 9.3 percent, compared with the 7 percent national average. Production in Oklahoma fell 8.3 percent in 1986 and 7.1 percent in Texas, according to the Energy Information Administration.

“There was just a flood of equipment on the market,” said James Richie, cofounder of Kruse Energy & Equipment LLC in Odessa, Texas. He has been auctioning oilfield gear for 32 years, and said he conducted 86 auctions that year, more than double the typical number. “In 1986, that equipment was bringing pennies on the dollar.”

The history helps explain why U.S. producers are blaming Saudi Arabia and OPEC for falling prices now and that they say are designed to push them out of business.

Shale Battle

“We’re in a battle with Saudi Arabia in regard to market share versus U.S. shale oil,” Scott Sheffield, chairman and chief executive officer of Pioneer Natural Resources Co., said on a Nov. 5 earnings call.

“What we’re dealing with here is a renaissance that’s going to be very long-lasting here in the U.S.,” said Harold Hamm, chairman and CEO of Continental Resources Inc., in a Nov. 6 earnings call. “And we see OPEC worried about that.”

The Saudis don’t see it that way. Saudi Arabia is committed to seeking a “stable” oil price and speculation of a battle between crude producers “has no basis in reality” Saudi Oil Minister Ali Al-Naimi said at a conference in Acapulco, Mexico, on Nov. 12.

The slump isn’t, regardless of what U.S. producers say, all the fault of Saudi Arabia or OPEC. The group has boosted output by more than 1 million barrels a day since June, led by gains from Libya and Iraq, according to a Bloomberg survey of oil companies, producers and analysts. The Saudis’ contribution was an additional 80,000 barrels. U.S. producers, meanwhile, ramped up output by 621,000 barrels.

Increased Supply

Taken together, the increases are more than enough to supply the 1.1 million barrels a day of worldwide demand growth the Paris-based International Energy Agency has forecast for all of next year.

The glut hasn’t stopped U.S. shale companies from drilling new wells. Top producers including Devon Energy Corp., Continental and Pioneer are planning double-digit production gains next year.

“The U.S. oil industry is blaming the Saudis for a problem that was created here,” Emerson said. “It’s like a gold rush. Everyone is trying to get as much out of the ground as fast as possible.”

Whether this slump proves as calamitous as 1986 depends how long it lasts. Many U.S. producers bought derivatives that protect them against declining prices. That insurance has its limits, and for some companies it will run out after the first half of 2015.

Less Cash

Shrinking revenue will leave less cash to pour into the ground, making some companies vulnerable to a credit crunch. Much of the shale boom is sustained by borrowed money. Total debt for 61 of the U.S.-listed companies in the Bloomberg Intelligence North America Independent E&P Valuation Peers reached $199 billion in the third quarter, up from $184 billion a year ago, according to data compiled by Bloomberg.

“There’s no doubt that you’ll see a lot of people who are vulnerable, especially the smaller players who don’t have deep pockets, and are already deep into other people’s pockets,” Lynch said. “Some of them are already hurting.”

Copyright 2014 Bloomberg.

they should have mentioned the early 00’s as well when R&B/Falcon crashed and burned…grew too fast, took on too much debt and down they went!

UH OH! Spagettios

a couple more

It looks like a good buying opportunity in deepwater drillers may be coming up. As always,the problem is identifying the bottom. I suspect it may be a lot lower, and further into the future, than we might think today.

[QUOTE=tugsailor;148795]It looks like a good buying opportunity in deepwater drillers may be coming up. As always,the problem is identifying the bottom. I suspect it may be a lot lower, and further into the future, than we might think today.[/QUOTE]

the question is if sixth generation deepwater rigs begin to get stacked? Statoil just announced cancelling the charter of a Stena ship in Angola which is going to cost them $350M to get out of but you gotta know if they are willing to drop all that cash to get out of a commitment, then the future must look very bleak for the majors and they are pulling way back on their exploration plans. At some point soon shareholders are going to demand the spending cease and you have to wonder if other oil majors will cancel their charters of drillships to make shareholders happy. That is going to really be a bleak time for all because that will mean the cancellation of work for support vessels as well. This building boom over the past decade will be followed by the typical bust that seems always to occur in this business. Why so many built so much simply based on faith and wishing always has amazed me.

If this oil price war goes on for at least six more months expect a bloodbath…

If MARAD was worth a damn, it would back American companies to buy up 6th generation rigs and reflag them US.

At the same time we would need a rule that foreign flag rigs could not work in the US, unless all available US flag rigs were working.

This is a big opportunity for American energy security and the US economy, but it will be squandered.

Equilibrium at 70-75 USD per bbl.

Hold that thought.

Plan accordingly.

Guess I’ll return the Super Duty duallie on Monday and put the pirouge on EBay

[QUOTE=tugsailor;148799]If MARAD was worth a damn, it would back American companies to buy up 6th generation rigs and reflag them US.

At the same time we would need a rule that foreign flag rigs could not work in the US, unless all available US flag rigs were working.

This is a big opportunity for American energy security and the US economy, but it will be squandered.[/QUOTE]

but what kinds of incentives can be offered to do this? Don’t expect tax breaks or loan guarantees…

however you will not find a man more in agreement with this idea than myself and not just rigs but all vessels working in the GoM should be US flagged even if not US built. Get all the foreign companies and their mariners out PERMANENTLY!

[QUOTE=+A465B;148800]Equilibrium at 70-75 USD per bbl.

Hold that thought.

Plan accordingly.

Guess I’ll return the Super Duty duallie on Monday and put the pirouge on EBay[/QUOTE]

At gas prices (and taxes) in Germany, that thing must be pretty expensive to drive.

[QUOTE=c.captain;148801]but what kinds of incentives can be offered to do this? Don’t expect tax breaks or loan guarantees…

however you will not find a man more in agreement with this idea than myself and not just rigs but all vessels working in the GoM should be US flagged even if not US built. Get all the foreign companies and their mariners out PERMANENTLY![/QUOTE]

I’d take it one step at a time. If the Federal Reserve could print many hundreds of billions of dollars to bailout all the big banks, and if the government could bailout the auto industry, I don’t see why they could not print a few billion more for MARAD to loan to American deepwater drilling companies to buy new rigs at deeply discounted prices, in the name of promoting American energy independence and security, and jobs. This might also be a good time for American companies to be buying and reflagging seismic vessels and construction vessels with government support. Of course I would eventually like to see the Jones Act extended to all vessels (and structures) working on the OCS, but that should be phased in over an orderly period of many years.

Given the technology available today, I do not understand why our government leases unsurveyed oil lease blocks. To me it would make much more sense for the government to contract out the 3D seismic work to find out what we really have, publish the data, and then seek informed bids (including overriding royalties) for the most promising prospects. I really don’t see why the government should be making public policy and allocating our assets to the private sector while blundering around blindly in the dark, and hoping for the best.

Meanwhile Oceaneering secures a contract for an island offshore vessel for the GOM.

With all the new HOS MPSVs coming out it seems ridiculous that more foreign flagged boats are still coming.

this is today’s ugly picture
WTI @ $66.15 down 11% on the day

the prediction for one year from now is not any better…$76 will not make for rosy times but it will not be the bottom falling out either

The Saudis are putting volatility and uncertainty into the energy industry. This drives away investment. Your jobs are based not on the price of oil but on the investment risk of energy exploration.

The Saudis kept oil prices stable for years. Investing in everything from off shore oil exploration to renewable energy became safe and reliable. Investors like that so the money poured in.

That investment in energy is what scares the Saudis. Volatility, not low prices, will keep the investors away. A return to high oil prices will not result in a return to oil exploration as long as there is high risk. Investors will move their funds into other industries.

Once the dust settles and the drill ships are welded to the piers the price of oil will rise. But even with higher prices don’t expect the Saudis to permit a return to energy investing. (In other words, the jobs won’t come back.)

what is interesting is to see the history of the price of oil over the past 30 years. through the 80’s and 90’s it is almost flat then starting in the late 90’s we see a steady rise going through some serious peaks and valleys in the 15 years since.

what I wonder about is how the supply and demand for crude oil has changed in those past 15years and the fundamentals which have driven that price rise trend? we all know that China has become a big consumer of oil in that time which added a new player in the market and increased global demand hence the upward trend but on the otherhand, in that time how the industry has continued to discover new sources from Brazil, to West Africa, to the GoM, to Alberta, to all the shale formations on the North American continent. Has the rate in increase of all those new sources lagged that far behind the increase in demand to cause the historic rise over 15 years or has it instead been the insertion of the speculators who before the late 90’s weren’t players? I believe their influence has played a very big role as has been mentioned by others. What about the instability in the Mid East? How much of the price rise is attributable to the “security pre mium”? How about the global surplus in US dollars out there looking to be spent on something of value? Oil has become the new defacto gold in the world and as long as it is traded only in dollars gives a downward value in the dollar and an upward value in oil. Of course, there is any governmental manipulation where higher prices become “policy” because of all the money it brings into national coffers?

So take away any or all the above “outside” factors influencing oil and what is the “real” value of it? Is it $70 to $75 per barrel or is it really lower? Seems that $10 to $15 lower might be more accurate? Low prices help the entire world’s economic growth but high prices help investment into finding new sources which helps us who work in the industry. Where is the point where it all comes together to a point where all parties are happy? $60 barrel oil is going to hurt the deepwater offshore profoundly and as I have said, it will be a bloodbath because of the inherent high cost to explore and produce for it. Can all the deepwater players trim the fat and live on $60/bbl? I believe that is going to require serious reductions in the cost of manpower from the unprecedented levels that they rose to. Do you really need to pay $1000/day to a boat driver when I am sure more than enough would take $600? Rollbacks do happen in this world and especially in this industry. Other than wages we already see how there are rollbacks taking place in the charter rates of drillships. From $700k/day to $400k. What drilling companies with huge debt loads can live with those numbers before the weak fall on their faces?

“May you live in interesting times" - traditional Chinese curse

yes, very interesting times to be living in…

here are the stock charts for a few service companies we all know and love…

really surprised that J Ray McDermott is still alive here…they are definitely the Horizon Lines of the offshore industry…one the the walking DEAD!

What is the true cost of oil? What if OPEC had not been price fixing, and mostly keeping the price artificially high, for the last 40 years? How much of the cost of oil is the the overhead and profits of the speculators which inflate the price? How much of the volatility of oil prices is caused by manipulation and speculation?

What is the real cost of Mideast oil, fully accounting for US military expenditures, to “assure supply”?

I have no way to know, but I have a gut feeling that “high cost” deepwater oil, shale oil, and tar sands oil, is still a lot cheaper than the true cost of Mideast oil after taking US military expenditures into account.

Only the US spends trillions of dollars on military expenditures to keep Mideast oil flowing while the rest of the world gets a free ride. Maybe we should stop subsidizing the price of Mideast oil for the entire world, and then see where the price of oil settles.