COSLProspector leaves the deep-water wharf of CIMC Raffles in Yantai, East China's Shandong Province. File photo: CFP

 

Graphics: GT

China Oilfield Services Ltd (COSL) announced on Monday that two drilling contracts held by its European subsidiary have been terminated and suspended, respectively, by its Norwegian counterpart.

COSL Drilling Europe AS (CDE), a subsidiary of COSL, said the company received the notification from Statoil Petroleum AS (Statoil) on Friday, in which the Norwegian energy company claimed that conditions for terminating one drilling contract had been met, according to an announcement published by COSL on the website of the Shanghai Stock Exchange (SSE).

Statoil said that the decision may have some short-term consequences for planned drilling activities, but it will not have an impact on long-term production in the Troll field, according to an announcement published on its website Sunday (Norway time).

COSL, however, said it strongly disagreed with the decision, and it will pursue further communication with the Norwegian company to resolve differences, according to its announcement on the website of the SSE.

Another drilling contract will be suspended to enable CDE to implement the necessary actions to fulfill the requirements of the contract, the statement said.

The contracts involve the Troll Field of Norway and two rigs operating there that are owned by CDE.

These are the COSLInnovator and COSLPromoter, respectively, the announcement noted.

Both are semi-submersible drilling rigs designed to operate in water depths up to 750 meters. They're widely used in harsh environments, according to the company's website.

The COSLInnovator began its eight-year contract with Statoil for operations in November 2012. The contract for the COSLPromoter began in January 2013.

However, the COSLInnovator was hit by a surge on December 30, 2015, which left one crew member dead and two injured, according to the Petroleum Safety Authority Norway (PSAN), a supervisory body under the Norwegian government.

It was the first fatal accident "in the petroleum industry on the Norwegian continental shelf since 2009," PSAN said in December 2015.

Statoil has informed the rig owner that the contract requirements for the COSLPromoter have not been met and it is in dialogue with the company on these issues, according to an e-mail the company sent to the Global Times on Monday.

Because the contracts are confidential, the company would not comment any further, the e-mail noted.

Analysts said they didn't see any direct connection between the accident and the Norwegian company's decision to end the drilling services provided by the COSL unit.

However, the bearish outlook of the global crude oil market is likely prompting the Norwegian company to change its production plans, Li Li, research director at Shanghai-based consulting firm ICIS China, told the Global Times on Monday.

"Oil companies are likely to become less motivated [in production] due to the continuing downward pressure on the crude oil market," Li said.

Global crude prices have plunged since the second half of 2014, falling from an average of $110 per barrel to below $40 per barrel.

The International Energy Agency said oil supply exceeded demand by massive margins in the past two years, according to a medium-term oil market overview published by the agency in February. However, the market is expected to return to balance in 2017, it predicted.

The agency also noted in the report that there have been major cutbacks in oil-related investment, and many projects on hold will be reevaluated.

These will "see the light of day" at lower costs than were thought possible a few years ago, the agency said.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times that Statoil is unlikely to end its cooperation with COSL, a leading oil field service producer in China, due to one accident.

"The main reason is declining crude oil prices, which have put much pressure on companies," he noted.

COSL has been affected by the sluggish oil market in recent years. It estimated that its net income in 2015 fell about 85 percent year-on-year, according to a preview of its annual financial report that was published on January 30.

This isn't the first time that Statoil has terminated a rig contract with COSL.

The Norwegian oil producer decided to stop working with the COSLPioneer some 13 months before the expiry date of August 2016, according to an announcement published on its website in June 2015.

The cancellation was described as a consequence of overcapacity in the rig portfolio, not because of safety or technical issues.