Volatility in commodity prices and international saber rattling haven’t been enough to rock the boat on the offshore sector -- at least not yet.

In fact, those trends seem to favor the one area of oil and gas that remains the industry’s major positive as the oil and gas services industry heads into second quarter 2012 earnings season. While the onshore well stimulation market weakens, the international sector unfolds at a snail’s pace, and the US land drilling sector looks at lower activity in the face of falling NGL pricing, momentum keeps building for the offshore, whether the arena is in the reviving Gulf of Mexico (GoM) or originates in deepwater programs overseas.

News flow on the sector should increase later this week and provide an initial boost in the wake of recent disappointing earnings pre-announcements in other sectors.

Several events added to recent volatility in oil pricing, including an end to the 16-day strike over employee retirement benefits in Norway’s offshore oil fields. On July 9, the Norwegian government intervened to halt the strike, which involved more than 700 workers and had oil and gas companies threatening a lockout that would have shut down Norway’s 3.8 MMboe in daily production, forcing parties into a new round of talks that so far have failed to allay fears over another work disruption.

And if that wasn’t enough, the saber rattling over claims that Iran was serious in its intent to shut down shipping through the crucial Strait of Hormuz continues to generate headlines with quotes from an Iranian general insisting Iran had the military competence to bring shipping through the strait to a halt.

At least one policy analyst affirmed the view and argued that subsequent US attempts to reopen the chokepoint “likely would escalate rapidly into sustained, large-scale air and naval operations during which Iran could impose significant economic and military costs on the US -- even if Iranian operations were not successful in truly closing the strait.”

The upshot was a rally in Brent crude back above $100, which provides enough comfort for operators to continue spending on offshore projects.

As if on cue, the offshore sector responded with additional new contract awards, including Noble Corp.’s inking of a three-year term contract with Anadarko Petroleum Corp. for the Noble Bob Douglas, an ultra-deepwater drillship currently under construction at Hyundai Heavy Industries Co. Ltd. in South Korea.

The drillship is expected to begin working for Anadarko at a day rate of $618,000 in the Gulf of Mexico following delivery in the 4Q 2013. The rig will be equipped to operate in waters up to 3,030 m (10,000 ft) in depth and is capable of simultaneous activity features. The drillship is one of four that Noble is building at Hyundai.

The award comes 60 days after Anadarko inked a similar $1.8 billion five-year deal for two Diamond Offshore ultra-deepwater drillships for the GoM. That contract provides a home for Diamond’s Ocean BlackHawk and Ocean BlackHornet, which are each under construction at the Hyundai Heavy Industries facilities in Ulsan, South Korea, once those units are commissioned in late 2013 and early 2014.

The Anadarko awards affirm the improving situation in the GoM as the offshore industry slowly regains its feet in a post-Macondo environment.

“We believe the deepwater rig count will surpass pre-moratorium levels by year-end,” Barclay Capital oil services analyst James West wrote in a July research report.

West cites offshore permit trends by the Bureau of Ocean Energy Management (BOEM), which issued 37 permits for floating rigs in the Gulf in June. Although the number was down from 44 in May -- and well below April’s peak of 56 -- West identified 24 new permits for exploratory work, creating an outstanding inventory of 28 for both shallow and deep water versus 26 at the end of 2011, and 20 for the same time period one year ago.

“We believe permit activity in the U.S. GoM remains healthy and suggests a continued improvement in the permitting process, which was stifled following the moratorium, and indicates the floating rig count is set to increase further as more deepwater rigs migrate to the region,” West wrote.

Those permitting trends are one reason the GoM Offshore Supply Vessel (OSV) market is anticipating increased utilization and higher rig rates in the second half of 2012.

“Operators in the GoM should see utilization levels around 90% in Q2 2012,” according to Gregory Lewis, an oil services analyst with Credit-Suisse.

Lewis issued a second quarter earnings outlook in mid-July that pointed to positive global trends for OSVs as the offshore industry girds for higher demand. The improving utilization trend comes in spite of the 100 new OSVs that were delivered during the first half of 2012.

He expects a similar volume to be delivered by year-end. The capacity expansion is expected to keep pace with growing demand rather than exceed it.

Newbuild deliveries continue in the offshore space with 10 units commissioned during the second quarter. The queue included five drillships, four semis, and one jackup. Through year-end 2013, the current newbuild construction effort should add another 22 drillships, three semisubmersibles, and 68 jackups -- assuming current construction plans remain on schedule.

Of course it wouldn’t be oil and gas if there weren’t countertrends extent, and offshore is no exception. Petrobras in June suspended a contract to purchase 16 supply vessels from Brazil’s Estaleiro Atlantico Sul shipyard. The event was precipitated in March when South Korea’s Samsung Heavy Industries sold its 6% stake in EAS, removing an experienced international technical partner from the EAS line up.

EAS is a consortium of two local Brazilian companies who lack experience in large-scale offshore construction projects. Petrobras gave EAS an Aug. 30 deadline to find a technologically suitable partner. EAS is also contracted to build seven ultra-deepwater drillships, but has yet to begin construction on the first vessel.

Contact the author, Richard Mason, at rmason@hartenergy.com.

Offshore