Analysis: Nearly 60 New Rigs Scheduled to Hit the Waters in 2010
With utilization rates in the mid 70th percentile worldwide, offshore rig demand is not as tight as it was a couple years ago, but nevertheless the worldwide rig fleet is expanding to meet the continuously growing demand for oil and gas exploration and production. Rig orders placed in 2006-2008, near the top of the offshore rig demand cycle, are poised to bear fruit in the form of rig deliveries over the next several years.
Likely having peaked in 2009, the current rig construction cycle is one of the largest in the offshore rig industry's history. However, with only a handful of orders placed since the credit crunch, the offshore rig order book is likely to continue to wind down as the offshore rig market digests the supply that is already poised to come online over the next couple of years.
Newbuild demand may not have completely dried up, however, as Transocean indicated in late-2009 that they may be close to signing a deal to support the construction of a new Arctic-class drillship. It is also likely that Petrobras will support new rig construction projects going forward, some of which could be announced in 2010. Furthermore, as 2009 drew to a close, Daewoo announced 3 new floater orders worth $1.6 billion, comprised of 2 drillships to deliver by early-2012 and 1 semisub to deliver by late-2011. Industry sources indicated that the two drillship orders were placed by Odebrecht, a contractor that already has contracts from Petrobras for several other deepwater newbuilds.
Looking ahead through 2010, there are 57 total rigs due to be delivered this year. This number includes 29 jackups, 15 semisubmersibles, and 13 drillships. It is worth noting that only about 15% of the jackups expected to deliver this year are currently contracted, compared to 80% and 77% contract coverage for the semisubmersibles and drillships delivering this year, respectively.
The rigs are due to be delivered in nearly equal increments throughout the year. Q1 will welcome 14 newbuilds, Q2 will see 16 new rigs, Q3 will see 14, and Q4 will welcome 13 new rigs, provided that all rigs are delivered as scheduled. It is worth noting, however, that due to likely delays in the construction process for some rigs and financing difficulties for some of the marginal owners/shipyards constructing rigs, not all of the rigs currently scheduled to hit the water this year will actually do so.
Thirty-three rig managers are expecting new-build rigs in 2010.
Seadrill, one of the most aggressive rig constructors of the past decade, has five newbuilds ready to leave the shipyard this year. These include three jackups, one drillship, and one semisubmersible. The semisubmersible is the only Seadrill rig that has secured a contract so far, although the rig contractor has indicated that it is close to securing a contract for the West Gemini drillship. While not yet finalized, management expects the dayrate to be in the low-$500s for that unit.
The West Orion semisubmersible is due to be completed in April. It will start its six year contract in the mid-$610s with Petrobras off Brazil in July.
Transocean has four drillships under construction; all of which are contracted. These include the Deepwater Champion, the Dhirubhai Deepwater KG2, the Discoverer India, and the Discoverer Luanda.
The Deepwater Champion is due to be completed in late-2010. ExxonMobil has contracted the rig through September 2015 at a dayrate ranging from the low-$640s to the low-$650s to work at locations to be announced, which may include off Brazil and in the GOM.
The Dhirubhai Deepwater KG2 is expected to leave the shipyard in March. The drillship will work for Reliance Industries off India through March 2015 at around $500,000/day.
The Discoverer India will also be under contract with Reliance Industries when it leaves the shipyard in Q3. Reliance will move the drillship off India through November 2015 at rate in the mid-$530s.
The Discoverer Luanda is an enhanced Enterprise class rig. It will be completed in early-2010 and go to work for BP off Angola for seven years ending in 2017 in the low- $430s.
China Oilfield Service has three jackups under construction. However, none of the newbuilds currently have contracts in place. One of the jackups is due out of the shipyard in Q1, and the other two are due out in Q2. It is worth noting that COSL's jackups are likely to be deployed in Chinese waters, and it is unlikely these units will compete for work outside of the Far East.
Rowan has three jackups due out of the shipyard this year, as well - none of which are contracted. One is scheduled to be completed in Q2, and the remaining two are due for delivery in Q4.
Saipem also has three rigs due to leave the yard this year -- one drillship and two semisubmersibles -- all of which are contracted.
The Saipem 12000 drillship is under construction in the Samsung yard in South Korea and is expected to leave the yard by February. It will work for Total off Angola through February 2017 at an undisclosed dayrate.
The Scarabeo 8 semisubmersible is in the Palermo Shipyard in Italy. It will be ready for service in Q2 2010. The semisubmersible is contracted to Eni to work off Norway from June 2010 through August 2014 in the low-$460s.
Likewise, the Scarabeo 9 semisubmersible is in the Yantai shipyard in China. The rig is expected to be delivered in March. It will work for Eni in the Gulf of Mexico starting in June 2010 through March 2015 at a rate in the low-$470s.
There are 20 shipyards scheduled to deliver a rig in 2010. Far East Asia is expected to deliver 23 rigs this year, which is the highest number from any region, and Southeast Asia has 18 rigs with delivery dates in 2010. The Persian Gulf comes in a distant third with eight rigs. Other regions with yards finishing up rigs for 2010 include Eastern Europe, South Asia, Brazil, GOM, and the Mediterranean.
The Keppel yard in Southeast Asia will deliver 9 rigs in 2010 -- three semisubmersibles, two drillships, and four jackups. In the Far East, the Samsung yard is scheduled to deliver seven drillships and one semisubmersible, and the Yantai Raffles yard is expected to complete three semisubmersibles and three drillships. The Goeje Shipyard in South Korea is constructing an unnamed Petrobras drillship for about $830 million, which is the highest construction cost of any rig due to be delivered this year.
The rig construction boom has provided a nice boost to local economies in regions like the Far East, the Persian Gulf, and Southeast Asia, which are hotbeds for rig building activity. In fact, looking at just the orders placed for the rigs being delivered this year, these construction projects will generate more than $11 billion in revenues for yards in the Far East, over $6 billion in Southeast Asia, and just over $1.5 billion in the Persian Gulf.
The cost of newbuild rig construction ramped up dramatically along with oil prices, steel prices, and rig dayrates between 2003 and 2008. However, just as the credit crunch and general economic malaise impacted demand for rigs from operators, new orders for rigs and ships have been curtailed in the wake of the downturn. Along with deflation across many asset classes in the broader economy and the energy industry alike, the cost of building a rig (including labor, steel, and equipment packages) has trended lower, and today, quotes for newbuild rig construction generally range from 15% to 30% below peak levels.
If we look at the average cost by rig type for the units delivering in 2010, drillships are the costliest rig to build with an average price tag of $665 million, compared to semisubmersibles, which cost an average of $512 million, and jackups at an average of $197 million. It is also worth noting that due to a variety of factors including limited delivery slots given the backlog of rig orders, the complexity of some newer rig designs and more marginal yards/owners constructing rigs, the amount of time it takes to deliver a rig from the day it was ordered has trended higher in the current newbuild cycle. In the chart below, we compare the estimated time from order date to delivery date for the existing fleet and the rigs currently under construction.
Out of the Yard
As 2010 begins, look for the ENSCO 8502 semisubmersible to leave the Keppel Fels shipyard in Singapore. The rig will work for Nexen Petroleum in the GOM through March 2012 in the mid-$480s.
Shortly after the ENSCO 8502, Frontier Drilling's Bully 1 drillship, the Saipem 12000 drillship (details above), Singapore Drilling's Naga 3 jackup, and Transocean's Discoverer Launda drillship are due to be completed.
As the remaining newbuilds on order leave the construction yards over the next several years, follow the projects they work on worldwide by visiting SubseaIQ or follow the contracts, developments, and initiatives of the rigs through RigLogix.