Analysis: Demand for High-Spec Jackups to Keep Growing
Drilling contractors are renewing their jackup fleets with high-specification jackup rigs through both construction and acquisition as operators renew exploration efforts following the 2008 global financial crisis.
Operators are seeking high-spec jackups with enhanced technical capabilities to drill in more remote, challenging environments and meet operational and safety standards. Declining production from existing oil and gas provinces, coupled with sound oil prices, jackup day rates and attractive shipyard pricing, have created an environment in which drilling contractors are willing to build rigs.
Rowan Cos. Inc. reported it has seen increased demand for its high-end jackups capable of drilling in more than 350 feet of water, and that utilization for its 133 jackups rated for work in this water depth stands at 85 percent. In a presentation at the Jefferies 2010 Global Energy Conference in Houston last week, Rowan noted that it is seeing day rates significantly higher for more capable jackups.
The company is seeing increased demand for its N-Class jackups on the Norwegian Continental Shelf, where declining production and an increasing number of marginal fields, along with strong exploration incentives from Norwegian tax laws, has boosted the number of new operators and licenses. Operators are also redeveloping previously abandoned fields and smaller satellite fields offshore Norway, which is driving jackup demand.
Rowan also said it's seeing potential markets for high pressure/high temperature capacity jackups offshore Mexico, Argentina, offshore Vietnam, Thailand and Malaysia and offshore Sakhalin. Rowan's backlog of work lies most in its international operations, with $1.6 billion in contract drilling backlog as of Sept. 30, 2010 and over $1 billion added during this year. Forty-two percent of Rowan's backlog is in the Middle East; 17 percent is in the North Sea and 16 percent is in the Gulf of Mexico. One of Rowan's jackups currently in the Gulf of Mexico will depart for the Middle East in January 2011.
Rowan, which currently has five high-spec jackups under contract with delivery dates in 2011 and 2012 -- four of which already have commitments— expects to have 45 high-spec jackups by year-end 2012.
Noble Corporation since 2007 has added three high three heavy duty hostile environment jackups rated for work in 400 feet of water to its fleet. Mexico's jackup market is finally beginning to sort itself out, according to drilling rig contractor Noble Corporation. While Pemex's jackup rig count could fall to the mid-teens at year-end, Noble reports it recently won three short-term, fast-track tenders that will keep its jackups working through Dec. 31. A recent hi-spec tender with age restrictions closed without garnering any bids.
Seadrill Chief Executive Officer and President Alf C. Thorkildsen said in the company's third quarter 2010 earnings call last month that a bifurcation of the jackup market has emerged mainly due to the difference in drilling requirements, as well as efficiency gained by new equipment.
"All companies have showed a willingness to pay for a higher hook load, extended cantilever reach and increased flexibility for off-line activities that the new units can offer, said Thorkildsen during the company's third quarter 2010 conference call. "This was an essential backdrop where we made our decision on the specification of the four new units," Thorkildsen said in reference to the four jackups the company has ordered.
"We wanted to build rigs to fit the tomorrow's requirements, with focus not only on water depths but in general, more drilling and storage capacity to target drilling longer wells in more challenging environments," said Thorkildsen.
"In our opinion, the market for premium jackup rigs continues to show positive development, with tendering activity improved quarter-on-quarter, keeping day rates at steady levels. However, seasonality effects in certain geographic areas and the short-term nature of jackup rig contracts could impose some uncertainty related to back-to-back contracts and some shorter period of employment can be experienced," Thorkildsen said.
The company recently took delivery of the new jackup drilling rig West Juno from Keppel FELS in Singapore. West Juno, a sister rig to West Callisto, is the sixth Keppel FELS "B Class" rig to be constructed for Seadrill. The rig features a 'fit for purpose' off-line pipe handling and stand building, enhanced mud systems as well as improved deck layouts and greater capacities compared to previous jack-up generations. The B Class design provides maximum uptime with reduced emissions and discharges.
Seadrill also has acquired the Petrojack IV from Petrojack IV Pte Ltd US $180 million and will be renamed West Cressida. The 375-foot Baker Marine Pacific Class-designed rig was built at Jurong Shipyard and entered service in 2009. In mid-2008 the rig was awarded a five-year contract by PTTEP with a day rate in the low-$150s. The contract will run through the end of second quarter of 2014.
According to RigLogix, 45 newbuild jackups have been delivered this year or have deliveries scheduled through 2013. Jackups scheduled for delivery include two KFELS MOD V B-design jackups for which Asia Offshore Drilling has finalized its previously announced construction agreement. Construction will take place at Keppel FEL in Singapore at a cost of US $360 million. Delivery is scheduled for 2012 and 2013, respectively. Asia Offshore Drilling also has options to build up to two additional jackups also at a cost of approximately US $360 million.