Texas rig operator lays off 140 workers after Murphy Oil cancels contract

International rig operator Transocean Ltd. has laid off 140 workers after El Dorado-based Murphy Oil Corp. canceled a deepwater rig contract that explores for oil and gas in the Gulf of Mexico at day rates of more than $600,000, Talk Business & Politics has learned.

According to monthly federal Worker Adjustment and Retraining Notification (WARN) Act notices posted recently on the website of the Texas Workforce Commission, Transocean laid off the rig crew workers that work on Transocean’s deepwater drilling rig, the Discover Deep Seas, just over a week ago.

Transocean, one of the world’s largest deepwater rig operators, had earlier announced on Feb. 8 that Murphy Exploration & Production Co., the Houston-based subsidiary of Murphy Oil, had elected to terminate the contract for the Discoverer Deep Seas.

“The rig’s contract was scheduled to end in November 2016. Transocean will be compensated for the early termination through a lump-sum payment that includes adjustments for operating costs,” the Swiss-based rig operator said in a Feb. 8 news release.

Transocean first contracted the ultra-deepwater drillship Discoverer Deep Seas to Murphy to drill for oil and gas in the U.S. Gulf of Mexico in late 2013. The drilling ship, built in 2001, was originally contracted out to the Arkansas oil explorer at a daily contract rate of $604,000, according to Murphy securities filings.

In its recent fourth quarter earnings report, the El Dorado oil and gas giant reported a net loss of $587.1 million, which included exit costs of $282 million for two deepwater rigs that were under contract in the Gulf of Mexico.

MURPHY ‘STACKS’ GULF DRILLING RIGS UNTIL OIL PRICES REBOUND
Murphy officials said the two rigs have now been stacked – an oil industry term for mothballing, storing or taking a drilling rig to harbor for later use – before their contract expiration dates and the remaining obligations owed in 2016 under the contracts were expensed in 2015.

“The rigs were stacked due to a severe drop in commodity prices causing Murphy to plan for a significantly lower capital spending program in 2016, lack of partner support for continued drilling and no available farm-out opportunities,” the company said.

In early December, Murphy announced that its non-operation Solomon well in Walker Ridge Block 225 in the Gulf of Mexico had completed exploratory drilling at nearly 34,600 feet, but came up empty. The well has since been plugged and abandoned with no further activity planned, company officials said.

Following the fourth quarter earnings report, Murphy officials said the company’s $825 million capital program for 2016 “remains under review for additional downward revisions should lower commodity prices persist.” That is 62% lower than the $2.19 billion spent in 2015.

INDUSTRY REPORTS SAYS ONE-THIRD OF OIL AND GAS COMPANIES WILL FACE BANKRUPTCY CHALLENGES
The budget and operational challenges experienced by both Transocean and Murphy Oil are taking place across the entire oil industry due to crude oil prices dropping below $30 a barrel a few weeks ago. In trading Friday on the New York Mercantile Exchange, West Texas Intermediate (WTI) for March delivery fell 0.94% to $30.48 a barrel. International Brent was down 1.08% to $33.91 a barrel.

On Feb. 4, Fitch’s rating service downgraded Transocean’s credit outlook to “negative” from “stable.” “The downgrade reflects heightened offshore rig re-contracting risk and Fitch’s lower and longer offshore rig recovery profile following the downward revision of our oil & gas price assumptions,” said the Wall Street credit ratings service.

A few days later, Fitch said on Feb. 9 that Murphy’s credit rating remained stable, although the rating agency said the Arkansas oil company’s $2 billion credit revolver that comes due in June 2017 “may require more accommodative terms to the banks to ensure completion.”

In addition, a widely-reported industry white paper this week by Deloitte said one-third of the industry’s oil and gas companies could go bankrupt this year as commodity prices mothball drilling operations and further prevent companies from paying down debt and expense due to lack of cash and access to additional credit.

In the United States, 35 oil and gas companies with a cumulative debt of under $18 billion filed for bankruptcy protection (liquidation and debt restructuring) between July 1, 2014, and Dec. 31, 2015, the Deloitte report said.

TEXAS WARN NOTICE HIGHLIGHTS UPCOMING WALMART, SOUTHWESTERN ENERGY LAYOFFS
In the monthly WARN act report by the Texas Workforce Commission, more than half of the companies announcing layoffs were affiliated with the oil industry, from larger oil producers to oilfield service, pipeline and equipment companies that support the larger companies that drill for oil and gas. The federal labor law requires most employers with 100 or more employees to provide 60 calendar-day advance notice of plant closings and mass layoffs.

Incidentally, the notice by Texas workforce officials also highlights recent layoffs by Fayetteville Shale leader Southwestern Energy and Bentonville retail giant Walmart Stores Inc. In a Jan. 21 notice, Southwestern alerted Texas workforce officials that it planned to lay off another 376 employees in Texas’ Harris County by the end of March. The Houston-based driller, which reports its fourth quarter earnings next week, announced it would lay off 600 in Arkansas at the same time as the workforce reductions in Texas.

On Jan. 15, Walmart notified the Texas workforce agency that it will lay off 1,133 workers in Brownsville, Austin, Bryan, Dallas, Frisco and Houston on April 15.