Unconventional upgrades could drive day rates

Deepwater drilling requires specific deepwater drilling assets that are becoming scarce.

Deepwater drilling requires specific deepwater drilling assets that are becoming scarce. If ODS Petrodata Inc.'s predictions are accurate, there could soon be a shortage of deepwater rigs unless more become available.

"We expect the market to tighten very fast," Tim Kellock of ODS told attendees at the Deep Offshore Technology conference in New Orleans.

In Kellock's estimate, supply and demand could meet by 2007, and there is not enough time for newbuilids to fill the potential void. There are already signs that day rates are on the rise, Kellock said.

Kellock suggested that unconventional upgrades could be the solution to the problem. Unconventional solutions include surface BOPs, slim line risers, monobore wells, artificial sea beds, and composite moorings. ODS calculates that there are nearly 50 candidates available for surface BOP upgrades alone.

"Impacts on day rates could be substantial," Kellock said.

Projections show exploration continuing at its present high level for some time. Kellock believes introducing unconventional upgrades could mitigate the high demand/spiking day rates issue. Introducing unconventionally upgraded rigs will limit a rise in day rates, Kellock said. Slowly rising day rates will absorb upgraded rigs' entering the market. Contractors owning second and third generation rigs will benefit most.

"This is a chance to break, or at least extend, the traditional cycle," Kellock said. And drilling contractors could be the primary beneficiaries.

"Drilling contractors never think they are getting enough for their rigs, and operators think they are paying too much," Kellock says.

Unconventional upgrades could be an innovative solution to the day rate and rig availability issue, evening out day rate levels and helping to sustain present levels of exploration.

11/30/04



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