Are Idle Worldwide, Some See Opportunity

$RDS-A, , $STO, $OIL

’s price dive has drilling rigs idle from Africa to Latin America as the world’s biggest energy companies pare spending and halt projects.

Drilling fees have dropped by about 50% in the past year, prompting junior Oil companies to lock in contracts before rates rebound. While smaller fields can be profitable for a $100-M producer, they are of little interest to larger rivals that need a higher rate of return in a tepid Oil market.

Rig costs typically react to Crude Oil with a lag of about 6 months, so today’s contracts reflect prices that sank to almost a 7-year low in January, forcing major producers to defer almost $200-B of “megaprojects.” By steering clear of costly developments such as Oil sands and deep-water deposits, the juniors can profit from current prices at about $60 a barrel.

The majors such as Royal Dutch Shell Plc ()and Exxon Mobil Corp (:XOM) have had to rely on refining and trading to buoy profits as they rein in spending and sell assets. The Holland based Shell is divesting fields in and Brazil, and said in January it will cut $15-B of over 3 years and pare exploration.

In , western Europe’s biggest oil-producing nation, Statoil ASA  (NYSE:STO) canceled a contract for a Oilfield Services Ltd. rig last week, 13 months before its expiry.

Offshore rates have dropped an average 44% in the past year for deep-water rigs and 46% for older jack-ups that operate in shallow waters. That has allowed the smaller producers to contract the rigs for new prospects.

For the smaller exploration and production companies, these fields are important, as the majors have the luxury of looking at other parts of their companies and wait for Crude Oil prices to recover before they start drilling again.

Stay tuned…

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