Rig construction market suffers repeated blows

July 1, 2020
The building of new rigs was already in a difficult spot considering that the market is still oversupplied, and the situation has only been hampered further by the oil price collapse and a global pandemic.

The building of new rigs was already in a difficult spot considering that the market is still oversupplied, and the situation has only been hampered further by the oil price collapse and a global pandemic. At the moment, a total of 76 rigs are under construction. Jackups make up a large majority, with 45 units currently under construction. This is well more than double the combined number of drillships, semis, and tenders currently being built, of which there are 18, eight, and five under construction, respectively. Out of these 76 rigs, only six were ordered with contracts in hand or by operators themselves, four of which are associated with Sete Brasil, but those charters have been scuttled since.

As has been the case for years now, Chinese shipyards continue to have significantly more rigs under construction than yards in other countries. At the moment, a total of 44 rigs are being built in yards in China, 33 of which are jackups; while of the five tender rigs under construction globally, four are in China. Singaporean shipyards are similarly focused on jackups these days, with 10 of the 16 units under construction there now being of that type. While yards in South Korea continue to decline in activity compared to the past, the country remains at the forefront of building drillships. All of the 10 rigs currently being built at South Korean shipyards are drillships, which accounts for over half of the 18 drillships under construction around the world, and nearly 40% of all floaters. Looking ahead, 34 rigs are officially scheduled to be delivered this year, with 33 more slated for next year, and nine in 2022. However, it should be noted that it is very unlikely that many of these rigs will be delivered as planned, particularly those scheduled for this year.

One potential source of relief that refuses to pick up steam is speculative rigs getting contracts while still in the yard. Of the 70 speculative units currently under construction, five have nabbed contracts, four of which are jackups being built in China, and the last is a drillship being built in Singapore. Three of the jackups will be going to the Middle East – two to Qatargas and one to ADNOC Offshore – while the other will be going to Mexico to work for Pemex. The drillship is Transocean's ultra-deepwater unit Deepwater Titan, which Chevron chartered for five years to use in the US Gulf of Mexico late next year. The most noteworthy element of this contract is the fact that it will be the first rig rated for 20,000 psi operations, and with that advanced technology comes a high rate of $455,000 per day. Transocean said in April that Chevron was not the only customer interested in a 20K BOP rig, and that this interest has not waned during the recent global turmoil. While the contractor did not name the operators in question, both LLOG and Total have 20K projects they have been pursuing. If a second rig is converted to be outfitted with a 20K BOP, Transocean said it would be the drillship Deepwater Atlas, currently under construction.

Since newbuild rigs are struggling to pick up work, contractors and shipyards continue to put under-construction units on standby to wait out the industry’s prolonged downturn. At least 37 rigs in the process of being built are currently on standby, and many of these units are ostensibly complete. Of those 37 units, 21 are jackups, eight are drillships, and four are semis, as well as all four tenders being built in China. While not always officially on standby, almost every rig currently being built has had its delivery pushed out by years, from the majority of jackups being built in China, to floaters in Sinagpore and South Korea being built for large, international contractors like Seadrill, Transocean, and Valaris. By comparison, on the shorter end of the deferment spectrum, the delivery date for Awilco’s first semi order with Keppel, Nordic Winter, was recently pushed out by six weeks to the end of April 2021. Only three of the 76 rigs currently being built are still on their original delivery schedule: semis Hai Long 1, Nordic Spring, and Sevan Developer.

Of course, as has been the case for years now, not all rig construction contracts are deferred; many have been canceled outright. That said, cancellations appear to have slowed significantly, with only a handful coming in the last year, like Transocean with two drillships at Samsung it acquired through the Ocean Rig merger; Seadrill with the last of its eight jackup cancellations at Dalian; and KS Drilling with two jackup cancellations at Shanhaiguan Shipbuilding. With these cancellations of rigs – many of them largely completed – comes the need for the shipyards to sell these assets. For example, Samsung has been attempting to sell drillships Pacific Zonda, West Dorado, and West Draco, while Daewoo has been trying to sell the drillship Cobalt Explorer, just to name a few. However, Chinese yards do have some help in this department as Sino-Ocean, also known as Guo Hai Offshore, has taken over the responsibility of selling many of the newbuild jackups that have been abandoned at six yards across the country. The entity does not have an operational arm but works behind the scenes to help facilitate bareboat charters, management agreements, sales, and other opportunities, sometimes by taking on direct ownership of the units.

As to be expected in an already oversupplied market, the number of new rig orders being placed continues to be a trickle, with no improvement expected anytime soon. Between 2015 and thus far into 2020, a mere nine units have been ordered, although one from 2015 was canceled not long after it was placed. Zero orders were placed in either 2016 or 2017, followed by three orders over the next two years; all for semis. The two rigs that have been ordered this year are both jackups that were ordered by ARO Drilling, a joint venture between Valaris and Saudi Aramco. Construction of the first of two units, ARO 001, started in May, and will be built collaboratively between Lamprell and International Maritime Industries (IMI), a Saudi maritime joint venture in which Lamprell is a partner. Most of the fabrication work is taking place at Lamprell's UAE facilities to train IMI personnel before the units are commissioned in 2022 at a Saudi facility. These are the first two of 20 jackups to be built for ARO Drilling, with the bulk of the remaining units to be built at a new shipyard in Ras Al-Khai, Saudi Arabia, orders for which are expected to begin in the second half of this year.

Meanwhile, the ongoing Sete Brasil saga cannot seem to find a conclusion, although negotiations between the contractor, Petrobras, and a potential buyer for the rigs persist. Construction only ever started on 17 of the planned 29 ultra-deepwater rigs, and that work was put on pause several years ago. In October, Sete’s creditors approved the sale of four of the unfinished newbuilds to Magni Partners. The semis Urca and Frade, which are being built by Keppel, are part of the deal; as are drillships Arpoador and Guarapari, which are being built by Jurong. It is understood that when the four rigs are completed, they will be managed by Etesco, which has deepwater experience in Brazil. It is currently unclear what the final total amount must be paid by Magni to acquire these rigs, but associated with this agreement, Keppel will recognize $260 million in debt recovery from the deal for Urca and Frade. This approval stems from an agreement made in 2018 between Sete and Petrobras following a prolonged mediation. As part of that settlement, Petrobras will charter these four rigs for 10 years each with a rate of $299,000 per day, although when these rigs will be delivered is still very much up in the air.

The coronavirus pandemic has complicated things even further, prompting several delays at the most prominent at shipyards in Asia. Sembcorp Marine shut down activity at two of its Singapore yards for two weeks starting in late April, and Keppel has had pandemic-related disruptions at yards in China, Singapore, and the Philippines. Shelf Drilling has not taken delivery of the two bareboat charters from China Merchant Heavy Industry due to the virus, and now expects the handover of jackups Shelf Drilling Fortune and Shelf Drilling Victory to take place possibly early in the third quarter. 

Request More Information

By clicking above, I acknowledge and agree to Endeavor Business Media’s Terms of Service and to Endeavor Business Media's use of my contact information to communicate with me about offerings by Endeavor, its brands, affiliates and/or third-party partners, consistent with Endeavor's Privacy Policy. In addition, I understand that my personal information will be shared with any sponsor(s) of the resource, so they can contact me directly about their products or services. Please refer to the privacy policies of such sponsor(s) for more details on how your information will be used by them. You may unsubscribe at any time.