Given recent volatility, if shit hits the fan and oil crashes, how secure are the backlogs?
Can the IOC's weasel out of the contracts ?
Also, people keep talking about expected scrapping in 2025 or 2026. So why were these not scrapped alredy? why pay for warm/cold stacked for several years, only to scrap them at the end?
(1) It depend on the terms and conditions of contracts (private), as well as the nature of the projects behind them. High profile projects with significant other capital commitments unlikely to be cut, but short-term, more flexible infill drilling are more susceptible. Need to underwrite each project.
(2) It depends on the T's and C's of contracts. Generally speaking, higher spec rigs have more negotiating power which may reduce option value of IOC's to break terms. You also need to understand the importance of each project to an IOC. That requires an underwriting of the IOC's capex and cash flows and their inventory of projects.
(3) Scrapping is a permanent decision and deepwater drilling moves slowly. I expect some announcements in coming months. I think some of them are still being bid into potential projects, although I believe the writing is on the wall with a few of these rigs long-term and I'd stop paying stacking expenses on a few of them.
Good article. What can I say? If it was easy, anybody could do it…😎
Given recent volatility, if shit hits the fan and oil crashes, how secure are the backlogs?
Can the IOC's weasel out of the contracts ?
Also, people keep talking about expected scrapping in 2025 or 2026. So why were these not scrapped alredy? why pay for warm/cold stacked for several years, only to scrap them at the end?
(1) It depend on the terms and conditions of contracts (private), as well as the nature of the projects behind them. High profile projects with significant other capital commitments unlikely to be cut, but short-term, more flexible infill drilling are more susceptible. Need to underwrite each project.
(2) It depends on the T's and C's of contracts. Generally speaking, higher spec rigs have more negotiating power which may reduce option value of IOC's to break terms. You also need to understand the importance of each project to an IOC. That requires an underwriting of the IOC's capex and cash flows and their inventory of projects.
(3) Scrapping is a permanent decision and deepwater drilling moves slowly. I expect some announcements in coming months. I think some of them are still being bid into potential projects, although I believe the writing is on the wall with a few of these rigs long-term and I'd stop paying stacking expenses on a few of them.