Petroleum News: Drillers face unprecedented rig backlog

Contracted drilling rig backlog grows to $34.5 billion in tight world market
Ray Tyson
For Petroleum News
Five of the leading offshore drilling companies in the world have accumulated a hefty $34.5 billion in contracted rig backlog, according to information compiled by the largest offshore driller of them all, Transocean.
“This is unprecedented in the offshore drilling business,” Transocean spokesman Guy Cantwell told Petroleum News.
Transocean alone has $16.8 billion in total contracted backlog, a sum the company said is two and half times greater than its nearest competitor. Transocean also said that from March 2, 2006, through March 2, 2008, the average day rate for its high specification fleet will increase to $320,500 from $179,600, a nearly 80 percent jump.
And for one of the company’s premium fifth-generation drillships, Discoverer Enterprise, Transocean said it will receive $520,000 per day from BP for three years of deepwater work in the Gulf of Mexico beginning in December 2007. BP is leasing the same rig, currently on a three-year Gulf contract that began in December 2004, for $182,500 a day.
Demand fueled by prices
Industry attributes the huge spike in day rates and contracted backlog to increased worldwide rig demand fueled by the unprecedented strength in oil and gas prices.
“Long-duration contracts are increasingly common,” Transocean said, noting that the market for fifth-generation rigs capable of drilling in 10,000 feet of water and more is expected to remain tight into 2010.
Transocean, which didn’t identify its competitors, said that in addition to the company’s $16.8 billon in contracted backlog, four other drilling companies have backlogs totaling $17.7 billion, ranging from $6.7 billion to $2.4 billion. Some of Transocean’s competitors include GlobalSantaFe, Diamond Offshore, Ensco International and Nabors Industries.
Transocean’s $16.8 billion rig backlog breaks down to $3 billion in 2006, $4.1 billion in 2007, $4 billion in 2008, $3 billion in 2009, $1.8 billion in 2010, $500 million in 2011 and $400 million from 2012 through 2014. Of the $16.8 billion in total backlog, $13.5 billion are for Transocean’s high-specification rigs.
“They’re not letters of intent. They’re not letters of agreement. They’re contracts that are binding — firm contracts,” Transocean’s Cantwell said. “And it has grown significantly in the last year or so.”
$3 billion backlog for 2006
The $3 billion in Transocean backlog for 2006 is slightly greater than the $2.9 billion the company earned in revenues for all of 2005. Transocean said 26 percent of its contracted backlog in 2005 was held by national oil companies, 26 percent by E&P independents and 48 percent by the majors.
More specifically, Chevron accounted for 16 percent of Transocean’s contracted backlog in 2005, BP 15 percent, Shell 11 percent, ONGC 8 percent, Reliance 8 percent, Petrobras 7 percent and Anadarko Petroleum 7 percent. The remaining 28 percent is held by “other” companies. Of total 2005 revenues, 43 percent came from rigs deployed in Europe/Africa, 34 percent in North and South America and 23 percent in Asia/Pacific.
Over a two-year period ending in early March 2008, day rates for Transocean’s fifth-generation rigs will increase on average to $385,600 from $208,100, an 85 percent increase.
During the same period, the company’s “other deepwater” rigs will increase to $273,200 per day from $159,600, a 71 percent increase, while Transocean’s “other high-specification” rigs will increase to an average $286,700 per day from $161,700 per day, a 77 percent increase.
“We believe the current (drilling) cycle will last longer than any previous cycle,” Transocean COO Jean Cahuzac told the A.G. Edwards Energy Conference in mid-March. He added that Transocean’s fleet is “largely committed” through 2006.
Ray Tyson is editor and publisher of www.upstreamreview.com

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