Current HERO Stock Info

The world’s largest oil producer canceled an offshore contract with Hercules Offshore

Saudi Aramco, the world’s largest oil producer, cancelled a contract with Hercules Offshore (ticker: HERO) last week, according to HERO. The termination of the contract for Hercules Offshore’s Hercules 261 is effective March 27, 2015. Initially, the contract was set to expire in late 2019.

Hercules 261 is a Marathon Letourneau Class 82-SDC with a designed water depth of 250 feet and a drilling depth rating of 20,000 feet.

In the company’s release, Hercules said that it is still in the process of negotiating the continuation of the Hercules 261 contract and is in discussions with Saudi Aramco about possible rate reductions on the Hercules 262 and Hercules 266.

In 2013, Hercules said it had received five-year contract extensions from Saudi Aramco on Hercules 261 and 262, reports The Wall Street Journal. At that time, the extensions included an approximate 50% increase in pricing that was planned to go into effect in late 2014.

Cutting costs

Ending its contract with HERO is only one of the ways Saudi Arabia’s state run oil producer is looking to cut costs since oil prices plummeted last year. Saudi Aramco is doing everything from asking contractors to lower their oil field services costs to negotiating discounts on the company’s phone and power bills, reports The Wall Street Journal. Aramco is also considering cutting future spending on E&P by as much as 25%, to $30 billion a year from $40 billion, industry sources said.

In December, the company met with companies including Baker Hughes (ticker: BHI), Halliburton (ticker: HAL) and Schlumberger (ticker: SLB) to ask the companies for discounts of up to 20% on certain services, according to people familiar with the matter. The companies do about $6 billion a year in business with Aramco combined.

“Like everyone else, we’re using the downturn as an opportunity to sharpen our fiscal discipline,” Aramco CEO Khalid Al Falih said in public remarks during the World Economic Forum in Davos in January. “We’re cutting on a few things that we could cut, but we’re as committed as ever to our long-term strategy.”

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