Rig Trends: Idle Times Ahead for Offshore Rig Fleet

Rig owners are retiring older rigs and making plans to cold stack others in an effort to reduce costs in the current market climate.

As the reality of low oil prices settles in, operators and rig owners are being forced to take hard looks at where and when they will spend money. Oil companies are reducing 2015 spending budgets significantly, which means in many cases rig contracts will not be renewed and several others are being looked at as possible early termination candidates. In turn, rig owners are having to make tough decisions on whether to continue to market or cold stack currently active rigs in addition to retiring older or long-idled rigs. In the past few months, Hercules Offshore, Diamond Offshore, Noble Corporation and ENSCO have cold-stacked a combined total of eight jackups and four semisubs. On the retirement front, since the fourth quarter of last year, Transocean (11) and Diamond Offshore (6) have scrapped 17 floating rigs. Most recently, Noble Corp. (3) and Atwood Oceanics (1) announced the retirement of four floating rigs. All were older, shallow and mid-water units that were either not likely to work for some time or were going to require substantial capital expenditures to remain competitive, and that money is simply not going to be spent on that equipment given the current market. In general, most future rig attrition can be identified from the existing fleet of cold-stacked rigs; however, in some instances a rig owner may opt to retire a rig immediately after contract completion. This article will examine long-idled rigs, the age of the rig fleet and the existing cold-stacked fleet to see which segments of the fleet will likely be affected in 2015.

Based on data from RigLogix, as of Feb. 1, there were 196 idle jackups, semisubs and drillships. Of those, 67 have been idle for one year or longer. A closer look at the numbers show that 55 rigs have been idle for two years or more, and most of those have not worked in three years or longer. In addition, there are 12 rigs that have been idle for at least one year, meaning 67 of the 196 (34.2 percent) stacked rigs have not worked in a minimum of 365 days. It must be pointed out that 17 of the 67 rigs are owned by state oil companies or shipyards, meaning that while not impossible, they might be less likely to be removed from service. The data also shows that 58 of the 67 rigs are jackups. Although larger contractors have been able to hang onto their long-idled units for years, in some cases a rig may be the only asset a company owns. Some of these companies may not be able to afford the substantial reactivation costs necessary to bring the rig up to operational standards. The resale market offers few, if any, opportunities to dispose of the rig for any kind of meaningful revenue. As a result, how long they are able to keep these rigs is questionable and makes scrapping a real possibility.