Weekly Offshore Rig Review: Build It And They Will Come

Last week, we looked at the contract backlogs for active rigs in the fleet. But in addition to these active rigs, there are many more currently under construction that will be entering the market over the next 3 years. And a signifcant percentage of these rigs already have contracts set to begin as soon as they leave the shipyards. So, the backlogs exist not only for existing rigs, but even for rigs that won't be available to drill for years.

During 2005, 31 jackups, 11 semisubs, and 2 drillships started construction. Thus far into 2006, another 7 jackups and 4 semisubs have been ordered, which is an even faster rate than in 2005. That pace is not likely to continue for the rest of the year, but we can expect to see more rig construction contracts being signed as 2006 goes on.

At this time, there are 51 jackups under construction at an average cost of $130 million. Additionally, there are 17 semisubs and 2 drillships being built at an average cost of $385 million and $525 million, respectively.

Looking at rigs coming out of the shipyard this year, a total of 9 jackups and 1 semisub are expected to be delivered during 2006. Of these, 2 are going to be working for state-owned companies NIOC and COSL. Of the remaining 8 rigs, half of them already have firm contracts and LOIs lined up. And well-paying contracts at that. One of these 4 jackups is being bareboat chartered for 5 years, and will generate nearly 15% more than its construction cost in that time. The other 3 jackups are all lined up with contracts that average nearly $180k per day for the next 2 to 3 years. So, with the contracts already signed for these rigs, each of them will generate more than its construction cost in less than 3 years.

2007 is set to be an even busier year for newbuild rigs than 2006. A total of 20 jackups are set to be delivered, while another drillship, one semisub, and two tenders are also coming out of the shipyard next year. With the delivery of all but one of these rigs more than a year away, only about 20% already have contracts lined up. But as with contracts lined up for rigs coming out in 2006, the contracts for these rigs are quite lucrative. For instance, Smedvig's new 9,800' semisub, the West E-drill, has an LOI for a 3 year contract at $485k per day that will generate $530 million over the life of the contract, nearly the entire cost of building the rig.

In terms of upcoming newbuild rig deliveries, 2008 is set to be the biggest year of all. A total of 18 jackups, 11 semisubs, and 1 drillship are scheduled to be completed that year. Of these 30 rigs, only 3 have contracts already lined up, but with more than 2 years until most of these rigs are delivered, there is still ample opportunity for these rigs to be contracted before they are available. Considering that, on average, 90% of comparable jackups are already under contract until mid-to-late 2007 and 96% of comparable semisubs are contracted until mid-2008, there is little doubt that these new rigs will find work quickly.

Rig Options
In addition to the 70+ MODUS currently under construction around the world, there are stil many more lined up for possible construction over the next several years. Awilco has options to build three more jackups in Singapore. While Thule Drilling has option to build 11 more jackups at the QGM Shipyard in the UAE. And Offshore Rig Services ASA has options for two additional semisubs at Yantai Raffles shipyard in China. That's a further 16 rigs that could begin construction in the near future.

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