Maersk Drilling and Aker BP have agreed to a one-year contract to deploy high-performance rig Maersk Integrator on the Norwegian shelf from June 2019. The contract is founded on the alliance that the parties entered into in 2017.
The Maersk Integrator will become the first rig to be contracted fully under the scope of the alliance between Aker BP, Maersk Drilling and Halliburton. When the high-performance jackup rig finishes its current campaign on Gina Krog in June 2019, it will go directly to Ula for a new one-year assignment with Aker BP.
The tripartite alliance was announced last year and focuses on working in collaborative relationships, which maximize value for all parties involved. This is established in contracts using a shared incentives model, thereby securing mutual commitment to reduce waste and deliver value. The contracts are based on market-rate terms but add the possibility of a sizeable upside for all parties, based on actual delivery and performance.
In the tripartite jackup alliance, the parties are exploring new ways of collaborating to increase the efficiency of drilling campaigns. In addition to setting up shared goals and incentives, it includes integrated project organisations, aligned safety procedures, and a one-team mindset guided by the principles of ‘best man for the job’ and ‘best for the alliance’.
Maersk Integrator is an XL Enhanced ultra-harsh environment jackup rig that is customised for the North Sea. The rig is currently stationed at Gina Krog field on the Norwegian shelf, where it has been engaged in its first-ever drilling campaign since June 2015. When that campaign finishes in June 2019, the rig will move south to Ula field to deploy for Aker BP. As an integral part of the alliance framework, Halliburton will function as service provider for the new campaign.
“With this contract, we will truly see the value of our alliance as we work together to reduce waste and lower the cost per barrel on Ula. The collaboration between our companies is under continuous development due to the alliance, and we expect to gain more and more mutual benefits from working together in new and innovative ways,” says Tommy Sigmundstad, senior V.P. of Drilling and Wells at Aker BP.
Maersk Drilling, Aker BP and Halliburton entered the joint jackup alliance in November 2017. The alliance aims at lowering the cost per barrel and increasing profitability for the partners through implementation of digital solutions, increased collaboration efficiency, and standardization and simplification of processes. It is formalised in a five-year agreement with the option to extend for an additional five years.
With this contract, Maersk Drilling has added a total of 2,373 days and $313 million to its backlog in 2018.
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This winter, natural gas prices have been at their lowest levels in decades. On Monday, February 10, the near-month natural gas futures price at the New York Mercantile Exchange (NYMEX) closed at $1.77 per million British thermal units (MMBtu). This price was the lowest February closing price for the near-month contract since at least 2001, in real terms, and the lowest near-month futures price in any month since March 8, 2016, according to Bloomberg, L.P. and FRED data.
In addition, according to Natural Gas Intelligence data, the daily spot price at the Henry Hub national benchmark was $1.81/MMBtu on February 10, 2020, the lowest price in real terms since March 9, 2016. Henry Hub spot prices have ranged between $1.81/MMBtu and $2.84/MMBtu this winter heating season (since November 1, 2019), generally because relatively warm winter weather has reduced demand for natural gas for heating. Natural gas production growth has outpaced demand growth, reducing the need to withdraw natural gas from underground storage.
Dry natural gas production in January 2020 averaged about 95.0 billion cubic feet per day (Bcf/d), according to IHS Markit data. IHS Markit also estimates that in January 2020 the United States saw the third-highest monthly U.S. natural gas production on record, down slightly from the previous two months.
IHS Markit estimates that U.S. natural gas consumption by residential, commercial, industrial, and electric power sectors averaged 96 Bcf/d for January, which was about 4.4 Bcf/d less than the average for January 2019, largely because of decreases in residential and commercial consumption as a result of warmer temperatures.
However, IHS Markit estimates that overall consumption of natural gas (including feed gas to liquefied natural gas (LNG) export facilities, pipeline fuel losses, and net exports by pipeline to Mexico) averaged about 117.5 Bcf/d in January 2020, an increase of about 0.2 Bcf/d from last year. This overall increase is largely a result of an almost doubling of LNG feed gas to about 8.5 Bcf/d.
Because supply growth has outpaced demand growth, less natural gas has been withdrawn from storage withdrawals this winter. Despite starting the 2019–20 heating season with the third-lowest level of natural gas inventory since 2009, by January 17, 2020, working natural gas inventories reached relatively high levels for mid-winter. The U.S. Energy Information Administration’s (EIA) data on natural gas inventories for the Lower 48 states as of February 7, 2020, reflect a 215 Bcf surplus to the five-year average. In EIA’s latest short-term forecast, more natural gas remains in storage levels than the previous five-year average through the remainder of the winter.
According to the National Oceanic and Atmospheric Administration (NOAA), January 2020 was the fifth-warmest in its 126-year climate record. Heating degree days (HDDs), a temperature-based metric for heating demand, have been relatively low this winter, which is consistent with a warmer winter. During some weeks in late December and early January, the United States saw 25% to 30% fewer HDDs than the 30-year average. This winter, through February 8, residential natural gas customers in the United States have seen 11% fewer HDDs than the 30-year average.
Source: U.S. Energy Information Administration, based on National Oceanic and Atmospheric Administration Climate Prediction Center data
Headline crude prices for the week beginning 10 February 2020 – Brent: US$53/b; WTI: US$49/b
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