Offshore rig forecast: cloudy with a chance of rain

Unlike numerous previous instances when Tom Kellock, ODS-Petrodata, has been able to provide detailed offshore rig forecasts at IADC events, he kicked off his presentation at the IADC World Drilling 2010 Conference in Budapest on 17 June by acknowledging that he would have few concrete numbers to offer this time around.

“Right now, because of the Deepwater Horizon, quite honestly, nobody knows what’s going to happen,” he said. “There are just too many absolutely fundamental questions about what is going to happen,” which precludes him from giving a quantitative forecast.

The backlog for deepwater rigs has fallen from its peak in 2008.
The backlog for deepwater rigs has fallen from its peak in 2008.

Nevertheless, Mr Kellock provided a review of the status of the offshore rig market, with mixed outlooks for the jackup and deepwater segments.

“I’m not sure many people realize this, but we’re only halfway through the newbuilding boom. We still have approximately 120 rigs to add to the fleet,” he pointed out. These additions mean that, when this build cycle is all said and done, the industry will have the largest offshore rig fleet in history.

The surprising fact about this construction boom, however, is that the makeup of this large fleet will remain roughly the same as it’s been over the past 25 years. Since 1985, jackups have remained between 56% to 58% of the total offshore fleet; semisubmersibles have stayed between 20% to 24%, drillships 4% to 7%, and other rig types making up between 11% to 17% of the global fleet. By 2013, after the massive newbuilding cycle is complete, and assuming no rigs are retired, there will be roughly the same ratio of rig types: 56% jackups, 25% semis, 9% drillships and 10% others (including arctic rigs, barges, tender-assist, etc).

Looking specifically at outlook for the jackup market, Mr Kellock attempted to stay on the positive side, commenting: “It’s not all doom and gloom. There are rays of light here and there.”

First, the US Gulf of Mexico has seen something of a rebound from record-low levels in 2009. Second, new premium jackups (water-depth capability of 300 ft or greater) are finding their place in the market. Third, a majority of the remaining jackups under construction are being built for specific target markets, and few will be competing for work worldwide.

Those are the positives. On the negative side, the fact remains that there is an ongoing surplus of jackups, with more than 100 units sitting idle today. Moreover, there has been no sign of a real uptick in dayrates, according to Mr Kellock.

Especially in the Gulf of Mexico, where the number of contracted jackups hit a record low of 15 last year, “the general trend is still somewhat negative,” he said.

Even though many of the newbuilds are being constructed for specific countries, which would appear to leave them out of the competitive global supply, it would be naive to assume they won’t affect the global offshore rig market, Mr Kellock pointed out. Even if those rigs go to work in specific markets like China, Egypt or India, “they are still taking the place of other rigs that might be marketed worldwide.”

On the deepwater segment, Mr Kellock noted that – even before the blowout, spill and ensuing drilling moratorium took place in the Gulf – potential problems had been looming. These included a falling backlog of contracted days per unit, the arrival of 17 new uncontracted ultra-deepwater newbuilds by 2012, rigs coming off of contract and the availability of units for sublet from operator to operator.

The good news here is that there appears to be plenty of uncontracted deepwater and ultra-deepwater work out there, according to Mr Kellock. He noted that there are 73 identified projects at least partially in water depths of 5,000 ft or greater that are scheduled to start before the end of 2011 and that have no rig contracted.

That does appear to provide plenty of demand to keep these deepwater units busy, although the actions that Petrobras will take are still uncertain and will weigh heavily on the deepwater segment, he continued.

“What Petrobras is going to do, how they’re going to react to the situation (in the Gulf) is another unknown and very important factor. There’s no question they are considering opportunities to charter (deepwater) rigs at less than they’ve done in the past, and they’ve been very successful at chartering rigs at lower rates,” he said.

In the Gulf of Mexico deepwater, which is nearly impossible to forecast at this point, Mr Kellock chose to offer a best-case scenario in which drilling activity drops to zero for six months under the current moratorium but then builds up again rapidly. Under this scenario, the effects of the drilling suspension may be temporary, and drilling activity could be back to historical levels by late 2011 or 2012.

In the long term, Mr Kellock believes that deepwater still has a strong outlook. Even if Petrobras goes ahead with plans to build 28 additional rigs, he said, forecasts still show a shortage of deepwater rigs in the future.

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