Rig shortage delays oil drilling in East Africa

9-April-2012

A worldwide rig shortage is delaying oil drilling in east Africa, which is slowing growth and pushing up costs in one of the industry's hottest new exploration areas, the Reuters News Agency reported at the weekend.

According to the Reuters report companies exploring for oil and gas reserves in east Africa said they have had to queue up to secure a rig and pay top dollar when those rigs are procured.

Last week British firm Tullow Oil and its partner Africa Oil announced they had discovered oil in Kenya for the first time, while additional quantities of gas deposits have been discovered in neighbouring Tanzania and nearby Mozambique.

Discoveries in east Africa and other new exploration areas have made demand particularly tight, said Terry Bonno, VP of marketing at the world's largest offshore drilling company, Transocean.

"The availability of ultra-deepwater rigs for 2012 is very constrained," Bonno was quoted by Reuters as saying. The wait for a rig can last more than a year, and the rental price per day is often close to $500 000, according to analysts.

"Limited availability ... is pushing rates up quickly, as evidenced by a few fixtures for short-term programmes above the $600 000 a day level," said Bonno, whose company has one ship off the coast of Mozambique.
The average price for offshore rigs that drill deeper than 4 000 m is about $450 000 per day, data firm RigZone says.

Bonno said the shortage has been caused in part by a drilling boom and a slowdown in production of new drillships as a result of the economic recession in late 2008.

This year the industry plans to build more than 50 newrigs, but Bonno expected the problem would persist for some time and would continue to push up the price of contracts.

While rig shortages are global and have existed for many years, the outlook tends to be worse in areas with nascent oil and gas exploration, such as east Africa. "Demand for deepwater rigs has gone up for use in east Africa ... there is definitely more international interest in the region," Marne Beukes, an analyst who studies sub-Saharan Africa for global data firm IHS, said. "In the long-term it could get more difficult to secure a rig."

Among other complications associated with getting rigs in new areas, fewer rigs are under contract in the vicinity, which means that ships must travel longer, lesser known routes to reach new exploration projects. Kenya's energy ministry said companies will need as many as half a dozen rigs in the coming year.

Other east African countries also have busy drilling schedules; Tullow has said it plans to drill as many as 20 wells in Uganda next year.

Frank Patterson, Anadarko Petroleum's VP of international exploration, was quoted by Petroleum Africa in March as saying the company's drilling plans off the coast of Kenya were likely to begin in late 2012 or early 2013, "dependent on rig availability".

Anadarko has two drillships under contract off the coast of Mozambique and has to wait until one of the ships has completed its current work so that it can be moved north.

The Citizen: Kenya