Source of this news is Bloomberg
Chevron Corp., BP Plc and other oil producers are locked into drilling offshore wells that cost as much as $200 million each because of rig contracts that were signed when crude was soaring above $140 a barrel.
Even as energy companies slash billions of dollars in spending to cope with the lowest prices in five years, deep-sea exploration continues unabated because canceling rig contracts would cost as much as finishing the projects, said Candida Scott, a senior director at Cambridge Energy Research Associates who tracks oil-development costs.
Demand for rigs that can fetch more than $600,000 a day to rent hasn’t diminished amid the $105-a-barrel tumble in crude from a July record, said Gregory Cauthen, chief financial officer at Transocean Ltd., the world’s largest offshore driller. Exxon Mobil Corp. and other producers use the vessels to search for crude in 50 million-year-old rock formations 6 miles (9.7 kilometers) beneath the Gulf of Mexico and the Atlantic Ocean.
Chevron, which last week discovered a prospect in the Gulf of Mexico called Buckskin that may hold 500 million barrels of oil, has no plans to idle any deepwater rigs, said Kurt Glaubitz, a spokesman for the company.
Moving Forward
“We’re going to proceed with moving our vast queue of deepwater projects forward,” Glaubitz said in a telephone interview. In addition to several prospects in the deepest reaches of the Gulf of Mexico, Chevron has drilling projects under way off the coasts of Scotland, Brazil and Thailand.
BP said Feb. 3 that it will add three wells at its Thunder Horse field in the Gulf of Mexico this year, bringing the total number of wells there to seven, pumping the equivalent of more than 250,000 barrels of oil a day.
“It’s very difficult for our customers to just terminate a contract as long as we are performing,” Transocean’s Cauthen said in a Feb. 4 presentation to analysts in Vail, Colorado. “Our long-term view remains fairly bullish” for deepwater-rig demand.
Canceling a $600,000-a-day lease with 12 months remaining could potentially cost $219 million. Oil-industry profits already are under pressure as energy prices slide and costs for rigs and other equipment remain at or near peaks, said David Foley, who helps manage $2 billion at Estabrook Capital Management in New York.
Waiting for Rebound
Energy companies are betting that in the five to 10 years it takes to turn a discovery into a producing field, crude prices will rebound and their finds will turn a profit, Foley said.
The last time prices slumped, explorers’ long-term approach paid off, said Robert Sweet, who helps manage $130 million, including Exxon and Chevron shares, at Horizon Investment Services Inc. in Hammond, Indiana.
BP’s 1.5 billion-barrel Thunder Horse field in the Gulf of Mexico was discovered in 1999, when crude traded as low as $11.26 a barrel. The field began pumping crude in June 2008, when oil topped $143 for the first time. Exxon owns a 25 percent stake in Thunder Horse.
In the final three months of 2008, Shell and London-based BP posted their first losses in 10 years and six years, respectively. Irving, Texas-based Exxon had its biggest decline in quarterly net income since 2002. Chevron, based in San Ramon, California, had its smallest profit gain in more than a year.
Even so, those four companies plan to spend a combined $105 billion this year on exploration, refineries and chemical plants, enough to fund the U.S. space program for half a decade.
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