Conoco exploration news

[Harry O]

Conoco are going to cut back on exploration. Wonder if the rest will follow and how it will affect rotary ops.

https://uk.news.yahoo.com/conocophillips-slashes-exploration-spending-154438782.html#RhvZXJZ

[terminus mos]

Yes they will all follow. You will see some rigs parked to keep the rates up as much as possible, you will see some older helicopters (L1 & L2?) parked or sold and a general softening of rates paid for services and helicopters combined with less work. Some oil and gas companies will cut back staff and our industries are in for a generally unpleasant round of cost cutting. We are already under instruction to prepare a 20% cost trim plan.

[212man]

Conoco are going to cut back on exploration. Wonder if the rest will follow

Clearly they will. We can expect to see more divestments, unconventionals moving to the back burner, and internal restructuring, I would suggest.

[Self loading bear]

Yes, they all join the show,

RIGZONE - More Than $150B Of Oil Projects Face The Axe In 2015 (http://www.rigzone.com/news/oil_gas/a/136245/More_Than_150B_Of_Oil_Projects_Face_The_Axe_In_2015)

Classic "pig/meat" price curve.
When the meat price is high all farmers start with breeding more pigs.
When the pigs are grown the meat price tumbles....

One should have thought they would have sufficient insight instead of hindsight?
The shale play has been on the playing field long enough?

SLB

[terminus mos]

Letters have gone out to aviation and other contractors asking for a 20% reduction in standing charges.

There is already more aircraft than usual available on the spot market. One operator in the US is mothballing some aircraft to reduce the market surplus, which can be done with owned aircraft, its very painful to do with leased aircraft. My company is "stacking" at least one rig.

Letters are going out to the big helicopter leasing companies to explain that times are going to be lean for a while.

[Fareastdriver]

When the reference to Conoco in the first post was written West Texas Intermediate was $64 bbl. It is now $48..

[albatross]

"Letters have gone out to aviation and other contractors asking for a 20% reduction in standing charges."

Funny - when the price of oil was at an all time high and their profits skyrocketing I don't recall the Oil Companies walking into the office and saying: " Times are good here's a 20% raise in your standing charges!"

JOKE!

[nowherespecial]

Worth bearing in mind that a lot of the Oil Co insist on 'new tech' ac (139, 225, 175 etc) when actually if they wanted to reduce cost, something like an L2 or a C+ would probably suffice for a lot of their needs and give them that 20% cost reduction they want.

The logistics aspect is the same, moving XXX people from A-B, it's just that the cost is different and the ac are older. It can be argued there is a safety change between say and L2 and an EC225 but the incident rates for both types overall are still very low.

Moving to new tech in many cases is a vanity/PR project with associated vanity project costs. An L2 these days is about $8m on the open market (purchase) while a used EC225 is closer to $20m. No prizes for guessing which one is more expensive to rent and where that cost ultimately ends up.

Helicopter operators are not in a position to simply reduce costs like that (good luck trying to refinance helicopters on lease or change unionized pilot/ engr salaries). I suspect that what will happen is less exploration rather than the same amount with reduced rates/ costs.

Edited to add that I work for an operator and I'm happier when they pay more for new ac.....

Edited second time to agree massively with Albatross' comment!

[terminus mos]

Most of the big leasing companies don't have L2s in their available fleets as no one wants to own old generation helicopters anymore (in case they get stuck with them) and oil companies don't want to contract them.

Lease cost differential between an L2 and a 225 is not worth arguing over when you examine the vastly different capabilities of the two aircraft.

Helicopter operators are not in a position to simply reduce costs like that (good luck trying to refinance helicopters on lease or change unionized pilot/ engr salaries). I suspect that what will happen is less exploration rather than the same amount with reduced rates/ costs.

There will be less exploration but that will lead to a surplus of newer generation aircraft available which will have a downward affect on prices.

Funny - when the price of oil was at an all time high and their profits skyrocketing I don't recall the Oil Companies walking into the office and saying: " Times are good here's a 20% raise in your standing charges!"

Not quite correct. Many current contracts were the result of commercial tenders in the "good times" when helicopter operators submitted tenders based on the upwardly rising market trend.

Helicopter contract rates over the last 10 years have increased at a higher rate than the simple lease / finance cost differential between an L2 and a 225 or S-92.

[nowherespecial]

TM,

There can't be a huge downwards effect on prices as most of the costs involved in ac are fixed, including lease rates. The leasing companies do not change their rates when times are bad. It's no different from normal asset financing.

For the lucky guys at Bristow who own more of their ac than say CHC, they might be able to fiddle with their returns and reduce their prices. For operators operating on a financed fleet, the returns might not stack up if they lower their charges to clients. (note other operators are available..!)

There will be price deflation of course (the race for a smaller barrel of business will see to that) but I think 20% is a bit ambitious and unrealisitic. I'd love to be there when oil goes back up to $100 a barrell when the big RW operators ask for their returns to go back up....!

[terminus mos]

NWS

A prices continue to slide towards $40, the pressure will be even more. One helicopter operator beginning with B is already in the advanced stages of "planning" staff reductions behind the scenes as they have lost some drilling work with cancellation of drilling programs.

Whether or not leasing companies will make any concessions remains to be seen but some earlier 225s and 92s are due for renewal soon anyway so they may have to adjust if they want to retain the business.

My company has already secured almost 20% on boats, helicopters are next, much to my annoyance as I am not personally a big fan of this cost cutting culture, those that are outnumber those that are not.

[HeliHenri]

.
Few months ago : Helicopter operators set for take-off as oil drilling picks up | Reuters (http://www.reuters.com/article/2014/06/03/helicopters-stocks-idUSL3N0NV6UY20140603)

Bristow Group Inc plans to invest $1 billion this year to procure just some of the 300 new helicopters that Barclays estimates will be needed by the oil and gas industry over the next five years.ue

"We will invest more in this one year than in the last two-and-a-half years combined," said Jonathan Baliff, the chief financial officer of Bristow who will take over as CEO on July 31.

"To invest a third of our market capitalization in one year is one way of saying we are optimistic of the future."
.

[inputshaft]

terminus mos

Your post practically begs the question on my favorite subject.

Has the Bristow Falklands contract been considered for cancellation? That would have to be a prime candidate for cost cutting, due to the logistical expense of any South Atlantic oil exploration and possible production.

There would probably be huge penalties paid at this stage for cancellation of the rig and aviation support. However, no sense in spending good money after bad, if the medium term outlook for oil prices makes the South Atlantic oil fields economically unviable.

[nowherespecial]

Bristow are also not massive in the short term exploration market either, their real winning point comes from their low longer term rates from more owned ac when oil cos move into production. That's where the other operators cannot compete.

I agree with TM that the pressure is huge, I just don't think we (the helicopter industry) can continue to service the oil industry if they walk into our offices one day and demand 20% off just because they are finding it tough. They are not finding it as tough as we are.....

Well the industry can but it has to accept that OGP compliance comes at a cost. If you want old ac and low hours pilots which are not maintained to the highest standard.... You know how the argument goes...:ugh:

[nowherespecial]

Also for HH, Bristow also announced in their recent annual report that one of the reasons for them only hitting their targets (not exceeding them) was constraint of supply of new helicopters, hence why they are buying more to make sure that doesn't happen again.

[HeliHenri]

.
My point was that all the lights were green just few months ago.
I think that Bristow is doing right.

P.S : an order for few EC175 this year ?...
.

[terminus mos]

Input, I don't know about the Falklands contract I'm afraid.

NWS, while I am on the "oil" side of the house, I had many years in the helicopter contractor side and I am fortunate to have written many cost models for calculating tender prices.

I happen to agree with you that 20% on standing charges is not realistically achievable by a helicopter operator alone. It would need quite some input from financiers and lessors.

We won't use low hour pilots or older aircraft, our workforce will not stand for it. I briefed management today, and was somewhat unpopular for doing so, that their projections of 20% were overly optimistic.

[gasax]

Last year I was chatting ot a young colleague who questioned whether choosing an oil and gas career )in hos case a process engineer) was a good idea.

I responded that O&G I a cyclical business with periodic boom and bust. We were at that time towards to end of the boom period, but if he was half way good at what he did, he would keep his job and continue to earn a reasonable living.

Since that conversation, in the middle of last year, the price has crashed and for me we are into the third major recession I have worked through.

The O&G industry's response to these events is always primitive and quick. There have already been large price cutting from some contractors to stay in business and for the weakest there will be more.

Caught between high leasing costs and a lower price the successful contractors will re-negotiate , the unsuccessful will fold.

O&G helicopter pilots will take a hit, I already have ad we'll see where it goes, in the grand scheme of things it is the great circle of O&G life. It is cyclical industry, understand it and live with it - or else find lower remunerated employment elsewhere!

[212man]

Someone of you knows about CONOCOPHILLIPS UK LIMITED?
I receveid from them a contract for a job

Does the offer e-mail have a Nigerian phone number (+234....), by any chance?