COLUMN | Blue Monday: Mexican suspensions; BP job losses; Namibian failure and Azerbaijani assets [Offshore Accounts]

The day on which this piece appears, the third Monday of January, has been dubbed Blue Monday and is supposed to be the most depressing day of the year for people in the northern hemisphere.

There’s no scientific evidence to support this claim, which was invented in 2005 as part of an advertising campaign. But even without Donald Trump’s inauguration coinciding with this gloomy milestone, actually, in the offshore business, Blue Monday 2025 may well prove to be the sad nadir for the industry in what should be an otherwise upbeat year.

Why do I say this?

Mexican misery multiplies

Having predicted that Mexico would be a source of misery for rig and boat owners in 2025, due to the financial problems afflicting Pemex, the state oil company, things escalated pretty quickly. In last week’s column, we covered how Pemex had first suspended then cancelled the contract for the CICSA-owned jackup Independencia I, and had also suspended one of Paratus Energy Services’ five jackups working for it, Courageous.

Borr Drilling put out one of the shortest and saddest press releases ever issued last Thursday. The jackup operator said it had “received a notice of temporary suspension of operation for its rigs Galar, Gersemi and Grid, operating in Mexico. The temporary suspension will be for a period of up to March 31, 2025. Based on discussions with our customer, it is expected that some or all of these three rigs may be resuming operation prior to this date.”

Usually with press releases you get some flowery words from the CEO and an affirmation of strategy.

Not so with Borr. The stock fell nearly ten per cent after the announcement was made and has halved over the last year.

DOF cancels delinquent charter

Nor was there solace the next day at DOF, the Norwegian listed owner of over 50 subsea vessels and anchor handlers. DOF published an even briefer and more brutal press release on Friday:

“DOF Group has terminated the contract for Skandi Implementer with a client in Mexico following payment default. DOF plans to have Skandi Implementer fitted with two of DOF’s ROVs and pursue opportunities in the global subsea market.”

The vessel’s tracker showed it has been moored at Dos Bocas in Mexico since Tuesday, January 14. In the presentation last year when Maersk Supply Service merged with DOF, DOF had stated that the vessel, then known as Maersk Implementer, was fixed firm in Mexico until April 2026, but the either the owners or the charterers, believed to be Mexican company Blue Marine, could give 90 days' notice of termination.

The ship is one of the youngest and highest specification vessels in the DOF fleet with a 400-tonne active heave compensated deepwater crane, Dynamic Positioning Class 3, a large moonpool, accommodation for 139 personnel onboard and 1,850 square metres of deck space. Definitely, it will find work again and probably at higher rates than in Mexico, but the question is how long the overdue invoices will remain unpaid by Blue Marine, and for how long the gap last until its next charter begins. Historically, February and March are quiet months in Northern Europe due to the harsh winter storms reducing offshore construction activity and inspection, maintenance and repair (IMR) work on production platforms and other facilities.

Sheinbaum promises payment

Last week, Reuters reported that Mexican President Claudia Sheinbaum had said that “she expects state oil firm Pemex's debt to suppliers to be paid off in March.”

Paratus had been bullish in its most recent investor presentation saying that it has “collected payments of c. US$850 million since 2021, highlighting longer term collection resilience, despite short-term fluctuations. Collections typically fluctuate during the year, but Fontis has a decade of history to demonstrate the collections over time and to inform planning of required liquidity at Fontis.”

Take note about taking Pemex notes

This was very heartening, wasn’t it? Unfortunately, when you read the small print in the presentation, you discover in a footnote on page 28 that said, “Included in the US$850 million figure is the nominal value of US$196 million unsecured notes issued by the customer in lieu of cash settlement for an equivalent amount of outstanding Fontis accounts receivables. During 2022, Fontis sold these notes for US$186 million.”

Since Pemex is Fontis’ only customer, we can assume that the IOUs were Pemex IOUs. Tidewater also received Pemex IOS in 2022 instead of being paid in cash by its indebted Mexican customer, as we highlighted here.

So, actually, Fontis lost US$10 million from receiving Pemex notes, rather than cold hard cash when the notes were redeemed for less than face value.

Tidewater also lost money on its Pemex IOUs, as we noted at the time:

“So, Pemex doesn't pay you, because it is a badly run state oil company operated on a non-commercial basis. Instead of cash, it you offers you its own corporate bonds. And guess what? The bonds fall in price. Who would have guessed? Really?”

More suspensions and payment in what?

So, looking past Blue Monday, be vigilant for more suspensions in Mexico and for more late payments by Pemex. As I commented on Twitter, national oil companies suspending rigs and boats are like cockroaches – when you see one, you can probably expect to find more.

Secondly, when President Sheinbaum says she expects Pemex’ legacy debts to its suppliers will be paid in March, we can probably trust her.

But the big question is with what the contractors will be paid. I don’t see the Mexican treasury suddenly handing Pemex hundreds of millions of dollars to make its international contractors whole.

Instead, I would expect to see a solution that involves part payment in cash (maybe even in pesos) and part payment in notes, bonds, IOUs or scrip of some kind, which Fontis and Borr will have to accept under duress.

Bosch's Law

Ultimately, Pemex’s US$100 billion debt problem will only be solved by producing more oil and gas, and doing so more efficiently. Long term, Pemex needs more drilling to develop its oil reserves and increase its production. No company with a huge debt pile has ever shrunk its way to success, as costs are harder to remove than revenue is to fall.

Call it Bosch’s Law, and credit me when you use the idea.

BP job losses

January has also been a dismal month for thousands of BP staff and contractors.

In December, we highlighted the departure of the boss of the company’s renewables business and its plans to merge all its offshore wind projects into a joint venture with a Japanese partner Jera.

Now there are more departures. Last week, the company announced plans to cut its 90,000-strong global workforce by around five per cent, resulting in 4,700 job losses. Additionally, BP will remove/fire/cancel 3,000 jobs held by contractors, and said that most of those redundancies had already taken effect.

The BBC reported that this was the first stage in CEO Murray Auchincloss’ drive to “simplify the business” and reduce costs by US$2 billion by the end of 2026.

The CEO apparently sent an email to staff saying that, “We have got more we need to do through this year, next year and beyond, but we are making strong progress as we position BP to grow as a simpler, more focused, higher-value company."

Isn’t the first time...

This might have some credibility were it not for the fact that a quick Google search reveals a torrid history of job losses and firing at BP. Every time the business takes a dip, the oil price falls or a new CEO needs a plan to demonstrate his strategic vision to the stock market, the company’s unlucky staff are culled.

In 2009, the New York Times wrote that the company’s then CEO Tony Hayward said, "he planned to continue with the cost-cutting program he started when he took over as chief executive [in 2007] and to improve earnings by adding production, which remains difficult because of high costs for new projects. BP cut about 3,000 jobs last year and expected to exceed its target of 5,000 job cuts by the middle of this year.”

This was quickly followed by additional waves of lay-offs:

• 2015: BP announced 4,000 job cuts due to falling oil prices under CEO Bob Dudley.

• 2016: An additional 7,000 job cuts were announced due to weaker profits and lower oil prices.

• 2020: BP announced 10,000 job cuts as part of a plan to shift towards renewable energy following massive losses of over US$20 billion due to write-offs and low oil prices in the Covid-19 crisis. The new CEO Bernard Looney declared that the company was “performing while transforming” and that the 10,000 job losses would involve US$1.4 billion of “people related costs” were “associated with the reinvent programme.”

What went wrong?

In 2009 BP and Shell were approximately the same size, each worth about US$180 billion. Today, BP has a market capitalisation of US$85 billion, whilst Shell is valued at over US$200 billion.

The reason for this under performance relates to just two events.

In 2010, BP suffered the Deepwater Horizon drilling disaster, which cost the company over US$54 billion in fines, litigation, and cleanup costs. One prominent job loss from this disaster was BP CEO Tony Hayward, who was let go from the company as a result of the Transocean semi-sub exploding in the Gulf of Mexico whilst drilling the Macondo well for BP. The blow-out resulted in the death of 11 workers from the rig, and the spillage of 4.9 million barrels of oil into the gulf.

The company then doubled down on its investment in Russia, which saw it sell its 50 per cent stake in the BP TNK joint venture business in Siberia to Russian state oil company Rosneft in 2013, and acquire 19.75 per cent of Rosneft as a result. Unfortunately, when Russia invaded Ukraine in 2022, BP was forced to relinquish its shares and took a US$14 billion write-down on the investment.

So, Blue Monday for BP’s beleaguered workforce needs to be set in the context of BP’s fifteen-year underperformance as a company compared to its peers.

Both Deepwater Horizon and the written-off Russian investment were avoidable misfortunes. Now BP’s staff once again pay the price. Remember Bosch’s Law above? The company is unlikely to shrink its way to glory by cost cutting. Instead, it either needs to produce more energy, or face its eventual acquisition by one of its competitors, who will then apply the axe to its cost base much more brutally.

Namibian nadir

Finally, one of my predictions for 2025 was that Namibia would continue its journey to becoming a major Atlantic Basin deepwater oil producer, following in the footsteps of Guyana, which is already producing over 600,000 barrels per day now after its first floating production unit came online in 2019.

TotalEnergies has approved investment in a new floating production storage and offloading vessel (FPSO) in neighbouring Suriname and we anticipate both TotalEnergies and Portugal’s Galp to approve field developments offshore Namibia.

However, the last few days have seen some unwelcome news. It is fair to say that January 2025 has not been a great month for oil and gas exploration in Namibia.

Shell and Chevron announce bad news

As Reuters reported earlier in the month, Shell has written off US$400 million of exploration expenditure in offshore block PEL39 in Namibia, where it has drilled nine wells and made the Jonkers oil discovery as the finds "cannot currently be confirmed for commercial development." The problem is apparently because the fields contain too much gas and not enough oil to be viable in Namibia.

This is not the first time Shell has encountered this problem in Namibia. In 2001, it drilled and appraised the Kudu gas field in shallower waters off Namibia, but struggled to commercialise the block with a gas-to-power project, and abandoned the block in 2004. Tullow Oil ended up with operatorship, but Tullow could also not get the economics to stack up due to limited power demand in the country, issues of power distribution in a large and empty country, and insufficient feedstock for an LNG project. It relinquished the block in 2014, as per The Extractor magazine’s succinct history.

Now BW Energy of Norway acquired the shallow water field and is still working to commercialise the find, which was first drilled and discovered in the 1974 by none other than Chevron. BW plans to drill another exploration well near Kudu later this year, and we understand that it anticipates a process to approve a gas-to-power project in 2026 or 2027.

Then, last Thursday, Chevron announced that its first deepwater well offshore Namibia, named Kapana IX in the PEL90 block, and drilled by the Odfjell semi-sub Deepsea Bollsta (which was supported by a trio of Bourbon platform supply vessels), had been a dud.

Should the government and people of Namibia be concerned? No.

Exploration is exploration, don’t worry

Exploration is an inherently risky business, especially deepwater exploration, and not every well will be a winner, especially in a remote location without existing infrastructure to tie back smaller discoveries into.

Sometimes what looks like a great prospect on paper turns out to be a dry hole when the drill-bit enters the target zone, or there simply is not enough oil or gas there to be viable. We saw this in Brazil and Argentina last year, we saw this in Canada and in Angola in 2024, as well, and in Lebanon in 2023, and we see it even in Norway, one of the most mature offshore producers.

It is worth remembering that, in the words of Guyana’s Oil Now website, “before 2015, offshore Guyana was considered a 'high-risk frontier basin' with 45 wells drilled over a span of 50 years resulting in no commercial discovery.” And even after ExxonMobil made the groundbreaking Liza discovery in 2015, Tullow Oil still managed to drill uncommercial discoveries on the Orinduik licence in 2019, and then another hit only water in its 2022 exploration well in Guyana’s Kanuku licence. Tullow has subsequently exited the country.

Blue Monday will be over in a day, and so will the run of negative news from Southern Africa. This year should only get better for offshore after the third Monday of January.

Background reading

The concept of Blue Monday in January being the most miserable day of the year has nothing whatsoever to do with the 1983 New Order dance-pop track Blue Monday. The opening lyric, “How does it feel to treat me like you do?” is exactly the sort of question contractors in Mexico are asking Pemex.

The EIA country report on Mexico provides valuable insight into Mexico’s energy production and consumption. The key statistic to recall is that oil Mexico’s production peaked in 2004 at 3.8 million barrels per day (bpd) and that it now stands at under two million bpd, just above national consumption of around 1.5 million bpd. Unless Pemex or the private producers like Repsol and ENI can increase production, it will have to start to import oil, which it can ill afford.

If you think I am being unfairly negative about BP, the company’s highlights of its 2024 achievements are here.

One of BP’s single most important operations is in Azerbaijan where the company produces around 340,000 barrels per day of oil from the ACG Field in the Caspian Sea and another 10 billion cubic metres of gas per annum (bcma) and approximately 50,000 barrels a day of condensate from the Shah Deniz offshore field.

Regular readers won’t be surprised to find that two former German MPs went on trial in Munich last week, accused of accepting bribes from Azerbaijan in exchange for promoting Baku's interests at the Parliamentary Assembly of the Council of Europe, as per the DPA newswire. Two other defendants have also been charged, and a third former German MP died whilst under investigation for receiving bribes from Baku.

The pair of former Bundestag deputies on trial, Axel Fischer and Eduard Lintner, allegedly received millions of dollars from shell companies funded by the Azerbaijan government as part of what the Organised Crime and Corruption Project (OCCRP) has described as “a secret US$2.9 billion slush fund to enrich its ruling elite and pay European politicians to improve Azerbaijan’s image.”

We should stress that the two Germans deny all allegations against them and there is no evidence of any involvement or wrongdoing by BP in this case.

Nor in the case of the many free business class trips to Baku for educational purposes, which OCCRP has shown were funded by the Azerbaijan government and Azerbaijan “charities” for British lawmakers in the House of Lords. OCCRP concluded that “three lords — David Evans, Qurban Hussain and John Taylor – share such an interest in Azerbaijan that they have asked virtually identical questions about the Nagorno-Karabakh conflict in parliament.” What an amazing co-incidence.

We also urge readers interested in how Azerbaijan’s oil revenues are ultimately spent to read how “Luxury London Properties Linked to Family of Azerbaijan's President Are Hidden Behind an Offshore Trust.”