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Transocean sees trouble ahead

Rig company had 11 contracts canceled since last year.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |   Feb. 25, 2016 at 9:41 AM
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ZUG, Switzerland, Feb. 25 (UPI) -- Spending cuts in energy exploration and production in the medium term is expected to create major headwinds, rig company Transocean said.

The company managed to post a net profit , despite shedding rig contracts in recent weeks. Energy companies burdened by the decline in crude oil prices are trimming their spending on exploration and production. Transocean joined its peers in a filing to the U.S. Securities and Exchange Commission in expressing concern about short-term market trends.

"We expect the near to medium term to be especially challenging," the company's filing stated. "The sustained weak commodity pricing, coupled with our customers' focus on reducing costs, spending within their cash flow and maintaining capital allocation policies are resulting in the delay of many exploration and development programs."

Crude oil prices are off about 70 percent from their peak levels above $100 per barrel in mid-2014. With oil trading at around $30 per barrel, Transocean said the market does not support sustained demand for drilling rigs.

"As a result of this reduced demand, we have seen a sharp decline in the execution of drilling contracts for the global offshore drilling fleet and an increase in the early termination or cancellation of drilling contracts," the company said.

An Angolan subsidiary of Exxon Mobil this week canceled a contract for Transocean's ultra-deepwater GSF Development Driller I rig early. Murphy Oil Corp. told Transocean in early February it was canceling its contract for the Discoverer Deep Seas rig in the Gulf of Mexico.

Baker Hughes, a company that provides services and data for companies working in exploration and production side of the industry, reported a January international rig count of 1,045, a decline of 50 from December and lower than January 2015 by 213.

Transocean since 2015 said it had a total of 11 rig contracts canceled early.

"We currently expect very few drilling contracts to be awarded in 2016, exacerbating the excess rig capacity and placing continued downward pressure on dayrates [for rig leases]," the company said.

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