Oil major Shell has decided not to exercise its remaining options for Awilco Drilling’s only operational rig – WilPhoenix – which would leave the UK-based drilling contractor with no operational rigs once the current contract expires unless Awilco manages to find a new deal.

Awilco Drilling owns and operates two UK compliant 3rd generation mid-water semi-submersible drilling rigs, WilPhoenix and WilHunter.

In its quarterly report on Wednesday, Awilco said that, in 2Q 2019, the WilPhoenix was in continued operations for Shell at the Gannet location and moved to the Heron location in late June where it remained until after the end of the quarter.

However, on August 13, Awilco Drilling received notice from Shell that the company would not be exercising the remaining contract options on WilPhoenix for two abandonment wells and three exploration wells.

It is worth reminding that the original contract with Shell was signed in May 2018 for a decommissioning program of 18 firm wells plus options totaling a further eight wells. This was later extended for one well.

In May 2019, Shell gave notice of its intention to Awilco Drilling to exercise two options under the WilPhoenix decommissioning contract covering the abandonment of five further wells. Following this extension, the contract included 24 firm wells with the firm duration estimated to run to late 1Q 2020.

Shell has now decided it will not use options that remained under the contract – for two further abandonment wells and three exploration wells.

As for Awilco’s second rig, during the second quarter of 2019, the WilHunter was cold stacked in Invergordon, where it has been for a while now.

The company also has two newbuild rigs on order. The rigs will be of a Moss CS60 ECO MW design and equipped for drilling in harsh environments, including the Barents Sea.

Awilco said that construction continues on Rig #1 in accordance with the contract and scheduled delivery in March 2021. Rig #2 will cut steel by the end of 3Q 2019 and scheduled delivery is in March 2022.

Awilco cuts losses

Awilco Drilling reported contract revenue of $10.4 million for 2Q 2019. This includes other revenue of $0.8 million, of which $0.6 million was in respect of bonus arrangements under the Shell contract. In the second quarter of 2018, Awilco’s revenues were $9 million.

Awilco recorded a net loss of $0.4 million in 2Q 2019, compared to a loss of $7.6 million in 2Q 2018.

Contract utilization was 50% during the quarter and contract backlog at the end of 2Q was approximately $14.3 million compared to approximately $20.2 million 1Q 2019.

Looking ahead, Awilco said: “We continue to see strong demand for modern high-end semi-submersibles in Norway and internationally with recent fixtures marking positive rate development and 2020 clear availability now limited. The UK market is expected to remain somewhat seasonal as we look towards 2020 but we expect a number of fixtures in the near term in support of high levels of utilization for the marketed fleet in Q2 and Q3.”