Diamond Offshore to take $20m hit after kit collapse incident at BP Shetland project

Diamond Offshore (NYSE: DO) stands to lose more than $24m in revenues after a drilling kit collapse incident on a BP project in the West of Shetland.

On 1 February the Ocean GreatWhite lower marine riser package “unintentionally separated” causing it to fall to the seabed at BP’s Schiehallion field during a storm.

Video obtained by Energy Voice showed the incident taking place. 

“We currently estimate that we could be off rates for approximately 90 to 100 days, which could result in approximately a $24 to $27 million reduction in revenue over the course of the first and second quarters,” Diamond Offshore’s  chief financial officer Dominic Savarino told investors.

Under current estimates, the rig will be back earning day rates in “April or early May”, Mr Savarino said during his firm’s fourth quarter investor update.

Diamond Offshore Drilling’s Ocean GreatWhite was carrying out a five-well campaign across the Ben Lawers project for London-lister supermajor BP (LON: BP) when it occurred

Mr Savarino added: “Our current estimate of incremental recovery costs and repairs, the maintenance is approximately $20 to $25 million and our current estimate of replacement capital expenditures is approximately $12 to $15 million.”

© Supplied by Kishorn Port

At the time when the rig’s lower marine riser package (LMRP) “unintentionally separated from the rig at the slip joint tensioner ring” there was no drilling taking place.

The firm’s chief executive, Bernie Wolford, said: “No one was hurt, no pollution occurred, and there was no damage to subsea infrastructure.”

Work to recover the GreatWhite’s lower marine riser package (LMRP) is underway and “progressing methodically,” the Diamond Offshore boss explained.

“The LMRP is situated on the seabed, exposed above the mud line in an upright orientation,” Mr Wolford added.

Diamond Offshore is now looking to lift the LMRP to the rig “in the next weather window.”

Mr Wolford also shared his appreciation for those involved in the process, saying: “I’d like to recognise the extraordinary work on our team in response to the incident and the quality of the ongoing collaboration with our clients and local authorities.”

Diamond Offshore looks to mitigate some of the costs that came as a result of the incident as insurance policies payout.

The firm’s CFO commented: “We anticipate that the incident will be covered by our hull and machinery insurance policy and that all incremental costs that are $10 million deductible should be reimbursable under the policy.”

In addition to this, loss of hire insurance will kick in after a 60-day waiting period. This will provide $150,000 per day for up to 180 days for each day of lost revenue.

Mr Savarino explained: “Based on our current expectations of being out of service for approximately 90 to 100 days, the loss of hire insurance may provide proceeds of approximately $4.5 to $6 million.”