Lloyds List: Rig bonanza keeps on rolling with rate highs

Martyn Wingrove
Published: Jun 21, 2007

THESE are heady days for the offshore rig market not seen since the early 1980s and the boomtime for owners looks set to roll into the next decade with dayrates in excess of half-a-billion dollars.

Every month charter dayrates are climbing to record levels as rigs move on to more profitable contracts, increasing contractor revenues and profits.

For those owners at the top end of the rig market there are serious gains to be made for the foreseeable future ultra-deepwater rigs under construction for delivery within two years can secure dayrates of up to $525,000 for three to five-year charters. At a newbuild cost of a minimum of $450m, these rigs need long-term charters at these high rates for contractors to regain their investments.

Oil companies wise to the increasing rates have booked up rig tonnage on long term charters with dayrates from $150,000-$250,000.

But as these charters are completed, rigs are moving on to improved rate levels set by the contractors.

‘Many high-value contracts signed last year will be kicking in this year or 2008’, explains Rod Hutton, a senior rig analyst at Aberdeen-based consultant ODS-Petrodata. ‘Most big contracts will be around $500,000 in 2008.

‘These are unprecedented rates never expected by the industry.’‛

And the jump in hire costs is by any standards even for an industry prone to hyperbole huge, with the Discoverer Enterprise due in December to see dayrates spiral from $190,000 to $520,000.

Meanwhile, a semi-submersible such as Transocean Amirante this August will command dayrates up to $325,000 from $135,000 and a month later, the Sedco 704’s rate rises from $175,000 to $312,000.

The backdrop of this is the massive increase over the decade in oil company investment budgets and spending on exploration for more hydrocarbon resources. This has resulted in high demand for rigs worldwide and global fleets running at 100% utilisation.

Oil majors such as BP, Shell, ExxonMobil, Chevron and Total are increasingly turning to deep and ultra-deepwater regions for hydrocarbons and leaving the shallow water activity for the independent explorers.

‘The deepwater market is the strongest segment and this is concentrated on the Gulf of Mexico, West Africa and Brazil,’‛says Mr Hutton.

‘Oil prices have increased and the larger operators have more funding to try and increase their reserves and to focus on virgin deepwater areas.

‘There’s confidence in the market and contractors have taken on newbuild projects and oil companies have given out long term contracts.’‛

Consequently, the world’s largest rig owner, Transocean, has secured long-term contracts from Chevron and Norsk Hydro at rates of around $475,000 for three drillships on order.

Newbuild Discoverer Inspiration’s charter rates could rise to $556,000 if Chevron chooses to take the ship for three years instead of five.

Current dayrates for drillships and semi-submersibles capable of operating in water depths of more than 1,500 m are around $400,000-$450,000, with the likes of Transocean Marianas commanding $435,000 a day in the US Gulf.

However, owners looking at units for delivery next year are now looking at dayrates closer to $500,000.

Norway’s Seadrill has secured a contract from ExxonMobil at a dayrate of $520,000 for the West Polaris drillship and won a contract from Husky for the West Hercules semi-submersible at $530,000. Both are due to be delivered in June 2008.

Semi-submersible rigs able to drill in water depths to 2,000 m, known as mid-water semis, are working on charter rates a little lower, but still considered very strong levels. Those operating in West Africa are on around $350,000 a day, such as the Jim Cunningham and Transocean Richardson.

Semi-submersibles working in the North Sea can get up to $380,000, such as Transocean’s John Shaw, which will earn this rate from November, said Mr Hutton.

The jack-up market is generally as strong as for the semi-submersibles but the US Gulf is seen as the weakest link.

‘The jack-up Gulf of Mexico market has been suffering over the last nine months from a lull in demand because of the low gas prices,’ adds Mr Hutton.

‘Insurance costs went up dramatically because of the hurricane so operators try to move their rigs out to avoid the insurance costs and are looking for longer-term work and higher rates elsewhere such as Mexico and the Middle East.‛

Jack-up rigs working in the US Gulf are on dayrates down to $70,000. GlobalSantaFe has rigs High Island I and VIII on these rates, but Adriatic III is on $120,000 a day.

Jack-up rigs that operate in water depths to 300 ft in West Africa, Middle East and Southeast Asia are on dayrates of around $170,000 to $180,000. Houston-based GSF has the Adriatic I and II working in Angola at $180,000 a day, for example.

The standard southern North Sea jack-up rigs have dayrates of $140,000 to $200,000 and heavy duty jack-ups operating in the central sector are on rates of $300,000, such as GSF’s Galaxy II.

GSF’s standard North Sea jack-up Labrador is on $170,000 and Magellan is getting $140,000.

There are holes opening up in a few long-term rig charters without enough work and these are now available for sublet. This is happening in the North Sea, where independent companies are able to take advantage of an active sublet market.

One note of warning, amid high oil prices that are set to keep global markets strong into the next decade, is that the industry will have to watch out for jack-up rig oversupply in the coming years.
 

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