Pemex scraps third Paragon Offshore rig contract as woes mount

ADAM WILLIAMS and ANDREA NAVARRO

MEXICO CITY, Mexico (Bloomberg) -- Petroleos Mexicanos abandoned a third rig contract with Paragon Offshore Plc this week as the state-owned oil producer reduces spending after prices collapsed.

Paragon received notice this week that Pemex will return the L781 jack-up rig after services weren’t approved, a week after receiving two other early termination notices, Andrew W. Tietz, senior V.P. of marketing and contracts at the Houston-based provider, said on an earnings call Thursday. Pemex also terminated service and drilling contracts with Diamond Offshore Drilling Inc. in February after announcing $4.1 billion in budget cuts this year.

“We are not the only drilling contractor experiencing pain in Mexico,” Tietz said. “Pemex struggles with a rash of fatal accidents, budget and funding constraints, organizational changes and national energy reform.”

Pemex’s Exploration and Production Director Gustavo Hernandez was temporarily reassigned Wednesday to a new role within the company a week after a rig collapse killed two workers in the Gulf of Mexico. Seven workers died and at least 238,000 bbl of crude were lost after an explosion at a Pemex rig on April 1.

Budget cuts have not affected Pemex’s rig maintenance plans this year, Pemex said in an emailed response, without answering questions about the international rig contracts.

Pemex reported a loss of $6.5 billion in the first-quarter as crude production slid and international oil prices fell. The company’s oil production has fallen for 10 straight years, and it’s banking on the entrance of foreign producers into the country to reverse the trend.

Paragon is “disappointed” with Pemex and will attempt to move several rigs north into the U.S. Gulf of Mexico or other locations, Tietz said.

“In the current environment, we are having difficulty getting any traction with Pemex,” he said.