Weekly Offshore Rig Review: Newbuild Contracts
In this week's offshore rig review, we'll be examining the newbuild fleet again, this time looking at the rigs that do and do not have contracts already lined up when they leave the shipyard.
By Delivery Year
In this process, a natural place to start is by looking at when rigs are set to be delivered. The table below provides a breakdown of the number of rigs of each type set to be delivered in each year. With 33 jackups and 12 semisubs constituting the majority of the 52 rigs set to be delivered, 2008 is the leading year in terms of expected rig deliveries.
As of October 18, 2007
|Drillship||1 rigs||4 rigs||6 rigs||10 rigs||2 rigs||23 rigs|
|Inland Barge||1 rigs||2 rigs||0 rigs||0 rigs||0 rigs||3 rigs|
|Jackup||5 rigs||33 rigs||23 rigs||11 rigs||0 rigs||73 rigs|
|Semisub||1 rigs||12 rigs||21 rigs||8 rigs||1 rigs||43 rigs|
|Tender||1 rigs||1 rigs||0 rigs||1 rigs||0 rigs||3 rigs|
|Yearly Total||9 rigs||52 rigs||50 rigs||30 rigs||3 rigs||145 rigs|
One would naturally assume that the sooner a given rig is set to be delivered, the more likely it is to have a contract in place, since its arrival is more certain and the rig manager has had more time to market the rig to operators. That would tend to drive a pattern of more contracted newbuilds among rigs set to be delivered soon, with the number of contracted rigs declining as delivery dates move further out into the future.
In looking at the trends, one does find that pattern being exhibited, with one important deviation. Rigs set to be delivered during the rest of 2007 have the highest proportion of contracted rigs, with 6 out of 9 rigs (67%) already contracted for an average contract length of 940 days. For rigs being delivered in 2008, 40% (21 of 52) of the rigs have contracts in place, which is clearly following the expected trend. However, looking forward to 2009, more rigs set to be delivered that year already have contracts lined up than rigs being delivered in 2008. In 2009, 24 out of 50 rigs (48%) already have contracts lined up. After 2009, the number of contracted newbuilds continues to fall as the delivery year increases with 23% of 2010 deliveries and 0% of 2011 deliveries being contracted at this time.
Another interesting item worth noting is that average contract length and average day rates both increase as the delivery year increases. Contract lengths rise from 940 days for rigs being delivered this year up to 2,191 days for rigs being delivered in 2010, with the biggest increase occuring between 2007 deliveries and 2008 deliveries where the average contract length jumps 851 days to 1,791 days. Day rates rise from an average of $320,341 for rigs being delivered this year to $482,767 for rigs being delivered in 2010.
Our examination of contracted newbuilds based on delivery dates showed a surprising "blip" in 2009, when more rigs being delivered that year were already contracted than for rigs being delivered in 2008. That blip can quickly be explained by examining newbuild contracts based on rig type.
Looking at the table below, it is apparent that newbuild semisubmersibles are much more likely than other rig types to have contracts in place before they are delivered. This fact coupled with the fact that more new semisubmersibles will be delivered in 2009 than in any other year helps to drive the increased percentage of contracted rigs amongst rigs being delivered in 2009.
As of October 18, 2007
|Rig Type||Cont.||Total||% Cont.||Avg. Cont. Len.||Avg. Day Rate|
|Drillship||11 rigs||23 rigs||48%||1,925||$474,144|
|Inland Barge||0 rigs||3 rigs||0%||--||--|
|Jackup||13 rigs||73 rigs||18%||1,057||$162,538|
|Semisub||32 rigs||43 rigs||74%||2,207||$389,129|
|Tender||2 rigs||3 rigs||67%||1,818||$112,000|
A key point to be gathered from the table above is that newbuild jackups are much less likely than drillships and semis to have contracts in place. This comparatively low level of contracts for newbuild jackups is somewhat surprising. All of the newbuild jackups fall into the high-specification group, being ILCs rated for at least 300' water depths. Of comparable rigs that are currently working, the average contract length is about 2.3 years, and on average those contracts have another 1.1 years left on their current contracts (not counting any additional contracts, options, or LOIs). That means that the fleet of rigs comparable to the newbuild jackups is contracted until the start of 2009. And yet, with 38 new jackups being delivered during that time frame, less than 45% of the new rigs have contracts even though the market for these rigs is quite tight. Either the market does not have much more demand for high-spec jackups or operators are waiting until newbuild jackups are delivered or close to being delivered before signing contracts.
Another interesting aspect of newbuild rig contracts is the success rate of different rig managers in landing contracts for their newbuilds. The table below provides data on newbuilds and contracts for the rig managers that have at least four rigs currently under construction. At the high end in terms of newbuilds with contracts are Transocean and Noble, which each have four new rigs under construction all four of which already have contracts lined up. Also worth noting is Seadrill, which has a total of fourteen rigs under construction, eight of which have contracts lined up making it the company with the highest number of contracted newbuilds.
At the opposite end of the spectrum is Premium Drilling, which only has one of its eight newbuilds contracted. Also at the lower end in terms of contracted rigs is Scorpion Offshore with only one out of five newbuilds contracted. What quickly becomes apparent when looking at these percentages is that the more established drillers have had more success in lining up contracts for their newbuilds while newer entrants like Premium and Scorpion have had much less success in doing so.
As of October 18, 2007
|Manager||Cont.||Total||% Cont.||Avg. Cont. Len.||Avg. Day Rate|
|Seadrill Ltd||8 rigs||14 rigs||57%||1,235 days||$428,499|
|Maersk Contractors||4 rigs||8 rigs||50%||1,171 days||$476,000|
|Premium Drilling||1 rigs||8 rigs||13%||151 days||$200,000|
|Scorpion Offshore||1 rigs||5 rigs||20%||731 days||$186,000|
|Noble Drilling||4 rigs||4 rigs||100%||1,128 days||$309,314|
|Transocean Inc.||4 rigs||4 rigs||100%||1,917 days||$434,574|
|ENSCO||3 rigs||4 rigs||75%||2,858 days||$306,644|
|All Others||33 rigs||98 rigs||34%||2,161 days||$233,836|
|Total||58 rigs||145 rigs||40%||1,949 days||$266,963|
We have already called attention to several rig managers for the number and percentage of newbuilds that they have already contracted, but there are standouts in several other aspects as well.
- In terms of average contract lengths for newbuilds, Awilco AS has been most successful in landing long-term contracts for its newbuilds, with two of its three semisubs lined up for 8 year firm contracts with options into 2026 that give it an overall average contract length of almost 12 years assuming options are exercised.
- Also in terms of average contract length, Premium has had the least success in landing long-term contracts with its one pending newbuild contract lasting about 5 months.
- In terms of average day rates for newbuild contracts, Aker Drilling A/S has landed the highest average day rates for its two new semisubs, with an average day rate of $502,500.
- Also in terms of average day rates for newbuild contracts, Jindal has the lowest day rate for its newbuild jackup with a day rate of only $140,000.
- In terms of newbuild contract backlog, Seadrill takes the lead, with over $4.2 billion in contracted revenue for its eight contracted newbuilds. That surpasses second-place Transocean by about $1 billion in newbuild contract backlog.
However you look at it, the newbuilds that will be joining the offshore rig fleet over the next four years are going to be alleviating pent up demand and reshaping the offshore drilling market for years to come.
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