The once-promising Brazilian offshore oil market is proving a thorn in the side of drilling contractors who are either leaving it or trying to shift some of their rigs elsewhere, according to fleet updates out this week.

The rigs in question are older and less capable than the newer ultra-deepwater models currently in high demand worldwide, and the availability of more standard “deepwater” rigs on the market will only add to concerns about downward pressure on rates paid for that class.

Transocean, owner of the world’s largest offshore rig fleet, said it had agreed with state-controlled oil company Petrobras to suspend as of Sept. 5 their contract on the Sedco 710 (mid-water semisub), which will now be “stacked” – or pulled off the market until it is needed again.

“The company is currently in discussions with the customer regarding the remaining contract backlog on the rig,” Transocean said in a note with its fleet status update late on Wednesday. A Transocean spokesman declined to comment further.

Based on a rate of $284,000 per day running until September 2016, the Sedco 710 had a remaining backlog of about $300 million left on the contract.

An analyst at Houston-based securities broker Tudor Pickering Holt called the move by Petrobras “worrisome.”

Petrobras, the world’s largest offshore operator, has faced increasing difficulty financing its $237 billion, five-year investment plan, the world’s biggest corporate spending program. Government refusal to let the company charge market prices for fuel in Brazil has crimped revenue, while delays developing giant new fields and declining output from old fields has seen output stagnate, forcing the company to increase debt.

Read the full article –  Reuters