Drilling rig contracts in gulf cancelled

Anadarko Petroleum Corporation announced they have exercised their Force Majeure option to drilling contractors of three of the company's contracted rigs in the Gulf of Mexico. Anadarko is cancelling their contracts.

In a statement from the company: "We remain committed to our strategic objectives, and we will not hesitate to take further action if necessary to protect the company and its financial health. Furthermore, as a non-operating interest holder in the Macondo well, we will also take appropriate steps to protect the interests of our stakeholders as facts become clearer on the root cause of the event. We also expect to resume our exploration, appraisal and development activities in the Gulf as soon as we receive greater clarity and the authorization to proceed," added Hackett.

Cutting loose the drilling rigs is a significant step. Anadarko is looking at a 6 month or more moratorium where they would not be able to drill. It would be very expensive to keep these rigs idle. They are also a partner with BP in the leaking well and will probably be responsible for some share of the containment and cleanup costs.

The companies that own and lease these deep water drilling rigs now loose their future lease revenue less any termination fees. These rigs can cost $500 million dollars and can lease for $500,000 per day. They will be looking to redeploy these rigs as quickly as possible. The only place they can redeploy these assets is foreign markets. These rigs are expensive to move and will typically be leased on multi-year leases. Once they leave they will not be available again for a long time. You can’t just shut down deepwater drilling in this country for 6 months and then quickly turn it on again.

I have seen estimates that each deepwater drilling rig is responsible for the employment of 1,400 people. This not only counts the people who actually work on the rig but also all the people who provide services to the operator and make all of the equipment and supplies that are used to drill these very expensive wells.

This one cancellation represents a loss of about 5,000 jobs. No wonder Louisiana governor Bobby Jindal is so upset about the deepwater drilling moratorium. The Wall Street Journal reported this morning that the technical experts referenced in the report Barack Obama used to support his drilling moratorium had actually opposed the administration’s moratorium on deepwater drilling.