Mexican national oil company Pemex’s decision to terminate rig contracts poses growing risks for Singapore rig owners, especially those with exposure to the Latin American country, a sector analyst has said.
Pemex recently terminated three jack-ups from US-based Paragon Offshore and four jack-ups from Diamond Offshore as oil prices remain low.
KGI Fraser Securities Joel Ng said this news will negatively affect Singapore rig owners Ezion and Swissco, as both have exposure to Mexico.
“With the recent cancellations, Paragon will effectively have nine out of 10 jack-ups with Pemex off-contract from June. Previously, only Diamond Offshore had received verbal termination of four rig contracts. The recent written notices of terminations have therefore added to our worries of more cancellations to come as major oil companies suffer from low oil prices,” Ng said.
There is also oversupply as new rigs enter Mexico.
“Around half of jack-ups working in Mexico are below 10 years old and Pemex has stated its intention to retire old rigs previously, but without giving a timeframe. The recent cancellations have once again brought up the challenges that owners of older jack-ups face in the country. Keppel and Sembcorp Marine both have more than 10 new jack-ups to be delivered in the next few quarters, exacerbating the already oversupplied market,” Ng added.
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Mexico’s rig utilisation rates have declined from 75% a year ago to 67% currently, as a result of both new rigs coming in (5% year-on-year supply growth in competitive rigs) and fewer rigs being used.
In the US Gulf of Mexico (GOM), utilisation rates have plummeted from 55% to 38%, meaning there are 122 jack-ups idled in the GOM alone.
Ng said, “Rig owners have room to sink some more. The current news of the cancellations will definitely have an impact on Singapore rig owners Ezion and Swissco.”
Ezion has around five rigs, while Swissco has seven rigs in Mexico, with three of the rigs jointly owned by both companies.
Ng said, “Shallow waters, once deemed resilient, is facing increasing pressure as the oversupply situation worsens. Thus, we remain wary of rig owners and reiterate our view of the high risks these companies face and the write-downs needed to align their assets values to current reality.”