Rig deliveries outpace demand, new orders fall
Thomas E. Marsh
ODS-Petrodata
New mobile offshore drilling rigs are being delivered into a market ill-suited at present to absorb new capacity, and some rigs are being delivered with no work prospects in hand. In conjunction, new rig orders have fallen dramatically over the past year, according to data compiled by ODS-Petrodata.
New rigs without contracts
In January 2006, the global offshore drilling fleet included 590 mobile rigs, and deliveries in the most recent new rig construction cycle were beginning in earnest. The fleet increased in size more or less steadily as shown in Figure 1 and as of May 2010, 703 mobile offshore drilling rigs were in existence, representing a 19% increase in the fleet size. The increase in fleet size will continue, as 126 new offshore rigs are still under construction, most for delivery by the end of 2012. As a result, many segments of the offshore rig market may be over-supplied.
The soft demand situation in the global rig market as a whole is creating problems for owners of some new rigs. Of the 63 new mobile offshore drilling units delivered since January 2009, 17 entered the fleet without their owners having firm contract commitments in hand. All 17 have since landed contract commitments, although not all are actually working yet.
More uncommitted supply overhangs the market. Of the 126 offshore rigs that are under construction, 67 do not have firm contract commitments as of May 2010. These include 39 jackups, 12 semisubmersibles, 15 drillships, and one drilling tender.
The end of the boom
As had been expected, the number and value of new rig orders fell dramatically in 2009 compared to the four preceding years when the new rig construction boom was in full swing (Figures 2 and 3). In 2008, 57 offshore drilling rigs were ordered at an estimated cost of $26.2 billion. In 2009, 18 rigs were ordered at an estimated cost of $4.1 billion.
New offshore rig orders to date in 2010 are running at a slower pace than 2009, with only two ordered as of May at an estimated cost of $837 million. One of these units, a semisubmersible, is being built at an estimated cost of $700 million, accounting for the bulk of the value in the rigs ordered so far in 2010.
With prospects slim for significant numbers of additional rig orders, shipyard owners may look back on the mid-2000s with longing: The estimated total value of the mobile offshore drilling units ordered between 2005 and 2008 approaches $85 billion.
Day rates take a hit
As illustrated in Figure 1, worldwide offshore rig demand was on the rise in late 2007 and the first three quarters of 2008 when the global financial crisis hit. Since then, the working offshore rig count has fallen below – then returned to – the level it was at in late 2006/early 2007, but rig owners in some markets continue to struggle to find work for their equipment. With supply continuing to grow and uncertainty still dogging the global financial and oil markets, downward pressure on day rates is another challenge for rig owners.
The movement in average day rates for many offshore rig market segments reflects this pressure. As illustrated by four selected rig market segments in Figure 4, average offshore rig day rates tumbled in late 2009, although rates have leveled off in recent weeks. Historically, offshore rig day rates tend to move down more quickly than they recover, and as operators in a number of rig markets are likely to be at an advantage due to the over-supply of rigs, that pattern is likely to repeat this market cycle.
Wild card in the Gulf
The tragic explosion on the semisubmersibleDeepwater Horizon that killed 11 people and subsequently saw the rig lost at sea and oil washing ashore uncontrolled has cast a pall on the Gulf of Mexico rig market. However, the ultimate effect on the offshore rig market cannot be predicted at this early date.
We can put the deepwater US Gulf in context with the rest of the world. The deepwater component of the US Gulf rig market at the time of the April 20 explosion represented a significant portion of the worldwide deepwater rig market. Of the 93 existing rigs in the world rated for 6,000-ft (1,829-m) water depths or greater, 29 were deployed in the US Gulf, the most of any single market. In addition, around half a dozen other deepwater rigs were scheduled to move into the US Gulf by the end of this year. Only time – and the playing out of the post-Deepwater Horizon regulatory and political process – will tell if the US Gulf can maintain its status as one of the world’s most active deepwater oil and gas provinces, and a destination for some of the new deepwater drilling units scheduled to enter service over the next few years.
About the author
Thomas E. Marsh is Vice President – Marine for ODS-Petrodata.