Weekly Offshore Rig Review: A New Way in Norway

The merger of Norway's two largest operators, Statoil and Hydro, is coming closer to fruition. Today, the Statoil corporate assembly endorsed the board of directors' plan and recommendations on the merger of the two companies. Additionally, and more importantly, Norwegian Oil Minister Odd Roger Enoksen stated yesterday that he felt confident that the European Union would agree to the merger between the two companies. Dow Jones quoted Minister Enoksen as saying "The market share in European countries of the new company will not be that substantial that it should be a problem," pointing to the fact that oil and gas supplied by the combined company would provide only about 16% of European consumption.

Statoil is the largest producer on the Norwegian shelf, with 989,000 boepd produced according to company statistics for the fourth quarter of 2006. Hydro is the second largest operator in Norway with 516,000 boepd coming from its assets as of the fourth quarter of 2006. The two companies' combined Norwegian production would be just over 1.5 million boepd.

StatoilHydro to Dominate Norwegian Rig Fleet
As of late March 2007, Statoil in the leading operator offshore Norway with a fleet of 9 mobile offshore rigs, two jackups and seven semisubmersibles, in addition to 12 platform drilling units. At the same time, Norsk Hydro is operating 6 mobile offshore rigs, all of which are semisubsmersibles, in Norwegian waters, along with 8 platform drilling units. Besides these two leading companies, there are six other operators that currently have mobile rigs contracted in Norway. In total, these six other operators are utilizing only six rigs.

In terms of comparing these companies, Norsk Hydro has as many mobile rigs contracted as the six other operators combined, and Statoil has 50% more than Hydro. As such, Hydro accounts for 29% of the rigs contracted in Norway. Statoil accounts for 43% of the rigs contracted in the country. When the Statoil-Hydro merger is complete, the combined company will account for 72% of the rigs working offshore Norway. This dominance in terms of offshore rig contracts is clearly illustrated in the chart below which shows how much of the Norwegian offshore rig fleet is contracted to Statoil and Nrsk Hydro compared to the other operators in the country.

Norwegian Offshore Rig Contracts by Operator
As of March 28, 2007
Pie chart of Norwegian Rig Contracts

The only aspect of offshore drilling occuring offshore Norway that is not dominated by Statoil and Hydro is the jackup market. Statoil is tied with ConocoPhilips as the leading jackup operator in the country, with two jackups each. Talisman and BP are currently each operating one jackup as well. So, of the six jackups contracted in Norway, only two (one-third) are contracted to Statoil or Hydro.

A Larger Smaller Role in the Outside World
With the completion of the merger, the new StatoilHydro will play a significantly larger role in the worldwide offshore rig fleet. Outside of Norway, Statoil currently has only 1 jackup and 1 semisub under contract for a worldwide total of 11 rigs contracted, 3 jackups and 8 semisubs. Meanwhile, Hydro has just 1 jackup contracted outside of Norway, for a total of 7 rigs worldwide. With this combined fleet, the company will be operating 4 jackups and 14 semisubs around the world. Those 18 rigs place StatoilHydro as the 7th largest offshore rig operator, tied with BP, but significantly behind the largest operators Pemex and Petrobras, which each have more than 30 rigs under contract.

When the merger is complete, the new StatoilHydro will have a much larger worldwide operational footprint, and be able to play a larger role in projects around the world. The company will be on much more equal footing with some of the largest non-state-owned operators such as BP, Shell, ExxonMobil and others when it comes to competing for resources in other areas outside of Norway. Plus, with a larger demand for rig time and being a largely state-owned firm, StatoilHydro should be able to negotiate more favorable rig day rates as time goes on.

For More Information on the Offshore Rig Fleet:
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