Oil prices remain depressed, with West Texas Intermediate trading below $50 bbl. in March and crude inventories (excluding the Strategic Petroleum Reserve) coming in at 434 million bbls. at the end of February, a 30-year high.
The low oil prices have taken a toll on production onshore, with a substantial drop in drilling and development, especially in shale plays. Activity in the U.S. Gulf of Mexico shallow-water market has seen some softness as well. Until now, however, the deepwater market has been largely spared from the operational downturn that have hit the rest of the industry.
At the end of February, Transocean announced the potential mothballing of some of its high-tech deepwater rig fleet, nine of which will be searching for new contracts this year. They will join eight other deepwater rigs from various owners up for contract renewal over the next few months. And Transocean has already announced the scrapping of 12 older floating rigs.
Many say that Transocean’s position is not representative of the broad deepwater market. The company, burdened with $9.1 billion of debt, has been ranked amongst the worst economic performers in the Fortune 500 index. Its debt was downgraded to junk status in February. One analyst has said that up to 60% of the company’s deepwater fleet could be mothballed. But Transocean is not the only company facing a deepwater slowdown. Unless oil prices climb, Transocean is certain to have some company.
So, what are the chances of an oil price revival? T. Boone Pickens and a cadre of like-minded analysts see prices around $100 again soon. And then there’s Ed Morse at Citibank (on www.thestreet.com). He predicts that oil could drop to $20 bbl. before the crude glut is cleared. If the latter is correct, deepwater is no longer a safer bet.