LONDON– Data from Westwood’s RigLogix service shows that some 230 rig retirements have occurred between the start of 2014 and March 2019, the result of which has been an offshore drilling rig fleet in net decline since 2015.
During this time 163 rigs were delivered. All but six were ordered pre-downturn. While many owners have delayed deliveries to the maximum extent that they can, according to Steve Robertson, Director, Head of Rigs & Wells at RigLogix, this overhang of deliveries for units ordered during the last cycle means that despite 230 rigs being retired, the net reduction in the total fleet is only 66 units. One rig was subsequently returned to the fleet after retirement.
Rig utilization for MODUs remains low at 54% on average. This suggests that without growth in demand there is substantially more trimming of the fleet required to bring utilization to levels that may see day rates improve, Robertson said. Yet there remains further newbuild units to be delivered. According to RigLogix data, 54 jackups, 13 drillships and five semisubs are scheduled for delivery in 2019, though most of these will ultimately be pushed into 2020.
Consolidation of the market will allow some further control of the fleet by contractors, Robertson said. Last yearTransocean acquired Ocean Rig and immediately announced the scrapping of two units. In early 2019, it scrapped two more. Prior to this, the company completed the acquisition of Songa Offshore and subsequently scrapped the Songa Trym and Songa Delta semisubmersibles.
Ensco and Rowan (including the ARO JV with Aramco) also merged last year, creating the largest rig owner in terms of total units. Once the deal is completed it is likely that some attrition from the combined fleets will take place. In 2017, Ensco acquired Atwood Oceanics, and while a few Atwood jackups were cold stacked, only one Ensco semi has been retired since.
With some rig contractors in default on their newbuilds, Robertson said, some shipyards have become rig owners. These shipyards have started to release some of the rigs at a discount to normal newbuild prices, either through direct sale or lease to rig contractors. For example,Borr Drilling, which spent $2 billion to purchase 14 jackups from Singapore’s PPL Shipyard and KeppelFELS, and Shelf Drilling, which in February 2019 announced the acquisition of two jackup rigs from China Merchants and the bareboat charter (with option to buy) of two more jackups. A recovery in demand could see further such rigs acquired as a lower-cost route for rig contractors to expand fleets with newbuild units.
Most of the rigs removed are scrapped, with the steel content (usually more than 95% of the rig) cut up and recycled. Some rigs also find uses elsewhere in the offshore supply chain, Robertson said. Since 2014, a total 23 have been re-purposed for other uses such as accommodation units or mobile offshore production units.
At present, under Westwood’s base case scenario, there will remain a supply overhang for some time, with the total number of working jackups, semisubmersibles, and drillships reaching 410 in 2020. Assuming further scrapping of 10% of non-marketed rigs per year, according to Robertson, this will bring utilization levels for the global MODU fleet to an average of 65%. However, there is tighter supply in some markets and material inflation in day rates.