The oil rig market is getting tight; is this the sign everyone’s been waiting for?
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The market for oil and gas drilling rigs is tightening and Key Petroleum (ASX:KEY) MD Kane Marshall is hoping this is the start of a positive year for Australian oil companies.
“The rig market is very tight, and finding slots this year is proving challenging,” he told Stockhead.
“What’s happened is Santos has upped the ante [in Queensland], they have a number of Ensign [Energy Services] rigs under contract and the gas shortage story is starting to play out.”
The rush is also partly due to companies that have failed to commit enough cash to drilling earlier and are now coming hard up against their licence commitment deadlines, he says.
The tight rig market is leading to more conversations about joint venture activity, which Marshall hopes is a precursor to an upturn in investment interest in the Australian oil sector and possibly takeover activity.
Marshall is a little concerned about the rig situation because Key has two wells it wants to drill in the Cooper Eromanga Basin Tanbar gas project, more in a brand new find nearby at Canaway Ridge, and drilling it wants done in the Perth Basin in WA.
“We’re pretty busy trying to find out how to find rigs for Tanbar and Canaway Ridge, and we want a rig for the Perth Basin. We’re finding it a bit tough to work out,” he said.
Today Key said the Canaway Ridge site had estimated recoverable oil of 7.6m to 50.6m barrels of oil, based on a seismic survey, from eight prospects.
Marshall says it’s a “material” find because it’s an area with high quality oil that’s reasonably close to the Eromanga Oil Refinery, one of two oil refineries in Australia. It’s cheaper and easier to drill than oil in the increasingly popular Perth Basin, and they can “probably” go from drilling to production within 12 months.
But drilling is unlikely to happen until next year because of the tight market for rigs.
The Australian oil sector was knee-capped when oil prices collapsed in 2014. What was left were a handful of very small cap producers and explorers — 15 on the ASX at Stockhead’s last count — a handful of large ones, and nothing in the middle.
It was equally devastating for companies that provide the equipment and drilling services.
In May last year, Marshall was among the local oil executives who thought things were turning around, as OPEC’s supply reductions were starting to have an impact on price and a small amount of acquisition action at the big end of the market suggested investors were back.
After doing a deal with a Texan private equity firm, he was also expecting much more private equity money to come into the Australian oil sector — it didn’t.
Today, he hopes the signs are there for that long awaited turnaround to happen this year.
He points to the tight rig market as the first sign.
“The rig market is telling me that if you don’t start doing deals you’re going to miss out,” he said.
He believes, based on conversations he’s already having, that “once you start doing something” — drilling — others will approach to get in on the action because they need something to sell to investors.
And with oil prices at $65-70 a barrel, “if you can’t make money out of that you shouldn’t be in the business”.