Deepwater drilling in the Gulf of Mexico (GOM) remains in limbo, but federal officials appear to be loosening their hold on permitting shallow-water projects, according to some offshore producers.
Apache Corp. on Thursday said it had ended its claim of force majeure — and a dispute with Rowan Cos Inc. — after receiving a federal permit to drill a shallow-water project in the GOM.
Apache had declared the force majeure on a Rowan jackup rig late last month, one day after Chevron Corp. also claimed a force majeure on a Hercules Offshore jackup rig.
Apache officials said they hoped the shallow water permitting process now is gaining momentum after coming to a standstill following the Obama administration’s decision in May to halt deepwater drilling, which is now in litigation (see related story).
However, even if federal officials have loosened their grip on permits for the shallow water, that may be moot if there are fewer rigs available.
Mark Keller, Rowan’s executive vice president of business development, said Thursday during a conference call that the company will be moving two rigs from the GOM to overseas markets by the end of the year. The move is because of increased demand elsewhere — not because of increased federal regulations, he said.
“We are not tendering these high-spec rigs out of the U.S. Gulf of Mexico because we have lost confidence in this market,” Keller said. “We believe the U.S. Gulf of Mexico will return to a normal level of permit activities soon, and we remain bullish on the deep gas play in the region.”
Three-year contracts by an undisclosed customer for the two rigs to be redeployed are expected to be completed over the next few weeks, according to Rowan. One rig should be redeployed by September; The second rig would be moved by December.
Rowan now has seven rigs contracted in the GOM.
Rowan, based in Houston, held the conference call to discuss its plans to buy Norway-based driller Skeie Drilling. Skeie has to date posted no revenue, but it is building three high-end jackups that are worth an estimated $250 million. The news came just four days after offshore drilling giant Noble Corp. agreed to buy privately held driller FDR Holdings Ltd., also known as Frontier, for an estimated $2.16 billion (see related story).
Rowan CEO Matt Ralls said the force majeure claims by shallow-water operators were strategic moves in case the U.S. permitting process proved too onerous. He said he didn’t think operators wanted to rescind their drilling rig contracts.
“As far as the jackup market, there are completely different dynamics in the Gulf of Mexico regarding the force majeures that did occur,” Ralls said during a conference call. “That was really just operators that were trying to position themselves in case it took longer to get permits.”
Chevron did not comment on its negotiations with Hercules regarding the force majeure it declared last month. Two other rigs that are owned by Hercules and operated by Chevron were not subject to the force majeure notice, Hercules said.
“It is unclear when we will be allowed to resume drilling in the Gulf of Mexico, but we hope we will be allowed to return to work soon,” Chevron stated.
According to Hercules, about one in three of its shallow-water GOM rigs is idle, which is double the normal rate. The federal permitting process is so low that it has created a “de facto moratorium,” General Counsel Jim Noe said in an interview with Reuters.
Chevron declared a force majeure on the Hercules 120 rig, which is earning a daily rate of $27,000-29,000, and which was set to increase by $4,000 this month until the contract was completed at the end of the year.
“We need forward progress,” Noe said. “I will not be comfortable until we see a flow of permits.”
A force majeure may relieve a producer from liability if “natural or unavoidable” catastrophes prevent it from fulfilling contractual obligations. Force majeures have been declared by several GOM deepwater operators since the federal moratorium took effect.
Under the moratorium, shallow-water production was not restricted by the Bureau of Ocean Energy Management (BOEM), the former Minerals Management Service. However, new regulations put in place since April 20 require more permitting requirements. Among other things, offshore drillers have to certify they have proper blowout preventers that are working and that they have conducted at least two cement tests on the drilling operations.
According to the BOEM, 11 permits were issued from June 8 through June 30 for projects in waters less than 500 feet deep.
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