We recently spent some time examining the relative ages of the different segments of the offshore rig fleet by type and by manager. As an extension of that information, this week's offshore rig review focuses on the construction trends and costs that have shaped the competitive rig fleet over that last 30 years and those that are shaping it today.
Currently, there are 65 competitive jackup rigs under construction around the world that are set to be delivered between now and the end of 2010. These rigs are being built for an average cost of about $161.
More broadly, for the 340 active jackups that were built prior to 2006, the average cost per rig after adjusting for inflation was US$84 million. The combined construction cost for all of these rigs was $13.6 billion in actual cost and $28.2 billion in inflation adjusted dollars. By comparison, for rigs set to be delivered after 2006, the combined construction cost is $13.3 billion.
The graph below illustrates the effect that the addition of the new rigs will have on the size of the fleet. More interestingly, it highlights the fact that today's newbuild rigs while constituting only about 20% of the jackup fleet will have accounted for more than 50% of the real dollar cost to build the jackup fleet.
For the existing fleet of semisubs built prior to 2006, the average construction cost was $189 million in inflation adjusted dollars. Most of those rigs were built prior to 1984 for an average cost of $56 million ($155 million in 2007 dollars). The combined construction cost for these semisubs was $15.4 billion in real dollars, which is equivalent to $28.4 billion in inflation-adjusted 2007 dollars.
As noted above for jackups, the graph below serves to illustrate the somewhat disproptionate share that the newbuilds have in terms of the overall cost of constructing the rig fleet. While newbuilds account for about 20% of the fleet, they account for nearly 40% of the construction costs in inflation-adjusted terms.
For the existing fleet of drillships built prior to 2006, the average construction cost was $265 million in inflation adjusted dollars. The combined construction cost for these drillships was $6.1 billion in real dollars, which is equivalent to $9.0 billion in inflation-adjusted 2007 dollars.
In the graph below, it can clearly be seen that the newbuild drillships will have a very significant impact on the overall size of the fleet, accounting for 35% of the fleet when they are delivered. These graphs also highlight the fact that these newbuilds are accounting for a much higher proportion of the construction costs of the fleet than rigs built prior to 2006.
For the deepwater rigs, demand seems very strong and likely to continue as such for many years to come. New rigs entering this market will obviously increase the supply and likely push prices (day rates) down somewhat, albeit not enough to upset the economics of these rig construction investments.
The future for jackups is less certain, given the recent slackening in jackup demand in the Gulf of Mexico, the world's largest jackup market. This slackening, along with other factors such as longer contracts and higher day rates in other regions, have driven many jackups out of the GOM, and overall worldwide jackup utilization has remained high. But the question remains whether the worldwide jackup market can absorb the new supply of rigs. With 22 new competitive jackups delivered in the last two years, and 65 more set to join the fleet, at a minimum, day rates will certainly be retreating from their record highs. However, it is possible that the market will not be able to utilize all of the new rigs, and older rigs may be forced into retirement. Time will tell.
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