As an indicator of the turmoil that has hit the US oil & gas services sector the Baker Hughes rig count is hard to beat. From 1,931 rigs drilling in September 2014 the count has declined to a total of 408, dramatically reducing activity and jobs for drillers, service companies and suppliers alike.
Unconventional activity has been hit hard. Higher horsepower rigs, ever-longer laterals and costly stimulation services increased well costs by millions of dollars compared with conventional, vertical wellbores. Despite impressive cost savings across the US, non-core unconventional assets have been among the main casualties of the current energy crisis. Even core areas of the prolific Eagle Ford and Williston Basins saw market declines in active rigs.
Those declines may have finally hit bottom. The last four Baker Hughes rig count updates have horizontal rigs targeting oil at 248, 249, 249 and 257 units. Larger unconventional drillers have stated that $50/bbl WTI will be enough for them to add rigs to the fleet, albeit in modest numbers, a price now within reach. While vertical rigs continue to decline slightly, the US service sector has now reached, or very nearly reached, what appears to be the trough. This is good news for oilfield employment with data suggesting up to 200 workers are employed for each active rig, either directly or indirectly.
While the unconventional oilfield services and new equipment sectors appear to have finally hit the lowest point in the cycle, their path to profitability remains distant. The balance of 2016 is set to remain testing as the unconventional rig count grinds upward.
Matt Loffman, Douglas-Westwood Houston
Coretrax, a leading engineered servicing company for wellbore clean and abandonment, has secured cost savings of nearly £10million in rig time for UK operators.
Focused on improving operational efficiencies and saving rig time in wellbore clean up and abandonment operations, Coretrax’s range of CX-products have been used extensively in decommissioning contracts with operators since 2012.
A Coretrax technician working at the company’s Aberdeen HQ. Credit: Coretrax
One solution from the product range used was the CX-2 bridge plug which is a versatile tool, suited to multiple applications in the oilfield, which reduces cement disturbance and rig time. In addition to this Coretrax have delivered time savings through drill pipe cleaning tools and by combining CX-2 bridge plugs with disposable scrapers to save trip time.
Earlier this year, Coretrax completed the setting of its 150th bridge plug as part of an ongoing abandonment campaign for an operator project in the UK sector. Approximately 40 bridge plugs have been run for the campaign to date, along with swarf recovery strings and drillpipe cleaning tools, and a 100% success rate achieved.
Coretrax global business development director, John Fraser said: “We’re proud that our innovative approach to well abandonment has saved operators almost £10million in rig time since 2012. In the current industry climate, cost savings are imperative and the fact that our technologies significantly contribute towards this is a key benefit for our customers worldwide.
“The design and versatility of the CX-products provide a sound solution for cementing operations. Achieving these cost savings as well as the setting of our 150th bridge plug are fantastic milestones, which not only highlights the reliability and effectiveness of the tool but further underpins our position as one of the leading suppliers of bridge plugs in the North Sea.”
Coretrax was established in 2008 to provide specialist wellbore clean up and wellbore abandonment tools, offering a wide range of downhole tools and services which provide up-to-date solutions to improve time efficiency, maximise cost reduction, reliability, damage prevention and technological advancement to the global oil and gas industry.
The company currently employs 42 people across its bases in Saudi Arabia, Abu Dhabi, Dubai, Kuwait and Aberdeen.
Autonomous underwater vehicles (AUVs) have been in operation for a number of years and are an established part of underwater activity, particularly in research and military where they are utilized for activities such as mine clearance, hydrography and data collection. Despite widespread use, there is still potential for substantial growth – each new technological advance increases the viability of the vessels in different sectors. This is particularly clear in oil & gas, where AUVs remain niche assets.
Technological advancement has driven growth in the sector and in the last few years units have become increasingly flexible. AUVs are now capable of performing a range of tasks, which can be changed quickly by operators. Beyond flexibility, increasingly compact vessels have been introduced to the market, making units viable at greater water depths. However, there are still a number of limiting factors preventing wider uptake, these include: limited communication, lack of manipulation ability and low levels of endurance. Improving these areas will be key for increasing the use of AUVs in the future – reducing the requirement for human workers, and likely leading to increased accuracy, reliability and safety.
Fortunately, the sector has a strong research culture and there is constant work to create new concepts and push the current technologies further. There are numerous concepts that aim to improve previous limiting factors, including Eelume’s subsea intervention “snakes” which allow inspection work in areas too small for typical tools, as well as potentially being able to manipulate and adjust subsea valves and chokes. This is a small step toward a fully autonomous subsea development – a likely boon for oil & gas companies. Statoil have recently signed an agreement with Eelume to help accelerate the technology, demonstrating that there is clear interest within the oil & gas sector for autonomous vessels.
In the near term, it is expected that the military will continue to be the biggest user of AUVs – their importance with regards to surveillance continuing to grow. Oil & Gas and renewables should also see an increase in the use of these vessels while they will remain integral to many research efforts. As DW explores in its new World AUV Market Forecast, the future for AUV units appears bright.
Ben Wilby, Douglas-Westwood London
Hercules Offshore, Inc. (Nasdaq: HERO) (the "Company" or "Hercules") has announced, following a review of its strategic alternatives led by a Special Committee comprised of all of its independent Board members, that the Company has entered into a Restructuring Support Agreement ("RSA") with lenders holding approximately 99 percent of the indebtedness under its first lien credit agreement. The agreement seeks to maximize value for the Company's stakeholders and provide a smooth transition for employees, customers and suppliers through an orderly sale of the Company's assets.
Under the terms of the RSA, Hercules and certain of its U.S. subsidiaries will solicit acceptances and rejections of its pre-packaged Chapter 11 plan from first lien lenders and shareholders, file voluntary Chapter 11 petitions to compromise the Company's obligations to its first lien lenders and provide a recovery to its shareholders, and then place all of the Company's unsold assets into a wind-down vehicle to ensure their continued, safe operation until they can be sold. The Company's international subsidiaries will not be included as part of the Chapter 11 cases but will be part of the sale process.
Hercules's Chapter 11 Plan (the "Plan") provides that unsecured creditors will be paid in full. The Company expects to file the typical First Day Motions to, among other things, maintain employee wages and benefits and insurance throughout the Chapter 11 process and will file a separate First Day Motion to continue paying its suppliers' pre-petition claims under normal payment terms. If the Company's shareholders vote as a class to accept the Plan, shareholders will receive cash recoveries over time including a payment of $12.5 million upon the completion of the Chapter 11 process and additional cash distributions thereafter depending on the success of the sale of the Company's assets through interests in the post-Chapter 11 wind-down vehicle. The secured lenders likewise are projected to receive cash payments largely dependent on the success of the sale process.
As part of the process, Hercules also announces that it has entered into a definitive agreement to transfer the right to acquire the newbuild harsh environment jack-up rig, formerly named Hercules Highlander, to a subsidiary of Maersk Drilling (CPH: MAERSK). The rig is ready for immediate delivery from Jurong Shipyard Pte Ltd ("Jurong") in Singapore. According to the agreement, Maersk Highlander UK Ltd. succeeds to the right to take delivery of the rig and will settle the final payment of approximately $196 million with Jurong.
On November 6, 2015, Hercules completed its initial financial restructuring under Chapter 11 of the U.S. Bankruptcy Code with a new $450 million senior secured credit facility in place. Since this time, the ongoing decline in oil prices, the consolidation of its U.S. customer base and the addition of new capacity have negatively impacted dayrates and demand for Hercules's services. On February 11, 2016, the Company announced a Special Committee comprised of all the independent members of its Board of Directors to explore strategic alternatives. Today's RSA announcement is the outcome of that process and follows a thorough sale process, which did not yield results that would have been better for stakeholders than what is contemplated by the Plan.
Additional information regarding the RSA and events leading up to its execution are available at http://www.herculesoffshore.com and will be filed with the Securities Exchange Commission. This information is not an offer or the solicitation of an offer for any transaction and may not be used or relied on in connection with any transaction.
The Company has engaged Akin Gump Strauss Hauer & Feld LLP as its legal counsel, PJT Partners as its financial advisor and FTI Consulting as its restructuring advisor.
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