US offshore drillers weigh risks of virus hitting Gulf of Mexico platforms

US offshore oil and gas operators have been in talks with federal regulators about the risks of potential coronavirus outbreaks on Gulf of Mexico platforms, but no decisions have been made to shut any operations, sources said Friday.

The Wall Street Journal reported earlier Friday that the Trump administration discussed a mandated shutdown of all offshore operations.

US offshore oil production was about 2 million b/d in March, according to the latest estimate from the Energy Information Administration.

NOIA, a trade group for offshore energy producers, downplayed the possibility of such a federal order and said it would face legal challenges.

"Shutting down Gulf of Mexico production could be a massive strategic mistake," said NOIA President Erik Milito. "Not only would production sit idle, many of the companies along the Gulf Coast that keep energy flowing would disappear forever.

"We believe President Trump recognizes the importance of the Gulf of Mexico, and understands that one does not simply turn off massive offshore platforms, without upending our economy and energy security."

The Interior Department did not respond to a request for comment.

COMPANY PRECAUTIONS

Jeremy Thigpen, CEO of large global deepwater driller Transocean, said that when news reports of coronavirus first began to circulate, the company immediately implemented health checks of crews at its heliports throughout the world.

The company operates 40 large rigs in nine countries, and travel with restrictions and other regulations changing daily, "you can imagine the challenges associated with changing out crews flying out every three weeks and delivering supplies," Thigpen said during a Tuesday webinar sponsored by investment bank Evercore ISI.

Transocean has an average of 150 people on a rig at any given time, a figure that can reach as high as 200 for the bigger rigs in remote, ultra-deep waters.

"It becomes more challenging every day as this [coronavirus] spreads and regulators and government bodies react to it with new precautions and restrictions," Thigpen said. "That has been consuming the bulk of our time."

At the time of the webinar, Transocean had no one in isolation or that had shown any symptoms of the virus, he said.

MARKET REACTION

The differential for medium sour crude Mars, produced in the Gulf of Mexico, strengthened during Friday trading on the news that the administration was weighing a potential shutdown.

May barrels of the grade were assessed $2/b stronger Friday at a $2/b discount to cash WTI, the value at which the grade was last heard to trade Friday prior to the S&P Global Platts 1:30 pm CT assessment deadline. Following the deadline, the grade was heard bid at a $2/b discount to cash WTI and heard offered at a $1.50/b discount.

Shutting in Gulf of Mexico production during hurricanes and tropical storms typically causes differentials for prompt barrels of the various crude grades to spike.

During Hurricane Barry in July 2019, for example, the assessed front-month differential for Mars crude jumped $3.80/b from a $2.60/b premium to cash WTI on July 8, to a $6.40/b premium on July 19. The differential further strengthen to a $9/b premium to cash WTI on July 23; however, the continued strengthening was also due in part to an uptick in prompt demand for barrels during the cash roll period, where the NYMEX front-month crude contract rolls to the next month while barrels for the previous month's delivery continue to trade.