04 July 2015, News Wires – Since the oil price collapse that began in 2014, the offshore drilling market has taken a big hit, both in terms of utilization and dayrates. In the past six months, several rig contracts have been terminated early and day rates renegotiated downward.
Too many new orders by rig owners and speculators has resulted in an oversupply and to offset that contractors have begun retiring or cold stacking large numbers of rigs, including some higher-spec units. In many cases, delivery dates of several uncommitted rigs have been delayed, in most cases by six months or longer.
While the rig market for Eastern Canada, defined for this article as the area off the coasts of Newfoundland and Labrador, has remained somewhat insulated, it is not completely immune from going through the peaks and valleys that occur in a cyclical market. If market conditions were to deteriorate any further, it would not be a complete surprise to see a contract modification and/or rate adjustment.
As drilling off the coast of Eastern Canada has moved into deeper waters and harsher weather conditions, the type of rig needed in the area has also evolved. Currently, there are three semisubmersibles working in the area, two of which are 6th generation, harsh environment rigs that can drill in waters up to 10,000 feet.
The third is a 1984 vintage unit rated to drill in up to 1,500 feet of water. This older unit is expected to mobilize out of the area later this year when it completes its current contract with Husky Oil. Subsequently, Husky will pick up a 6th generation newbuild early next year for a 5-year term. Drilling off Eastern Canada, especially in the winter months, is one of the most challenging operations in the world.
Some say it is more severe than the harshest part of northern Norway, and there are reports suggesting operating conditions in some areas might be even more difficult than originally thought. Aside from the weather, there are other challenges that come with operating in this region. Shipyard time and upgrade costs are high as the requirements for getting a rig into this region are stringent.
Also, the regulatory climate continues to evolve as the procedures and guidelines are refined. It is said rig approval times can be protracted and not always predictable. However, it should be noted there have only been two modern deepwater rigs brought to the area for a handful of operators –a small data set. As time goes on and more rigs arrive, all parties involved will become intimately familiar with everything required and the process will improve. Already difficult logistics will become more complicated as drilling moves into deeper waters.
While the Hibernia field around the Jeanne D’Arc basin fields are already some 185 miles from shore, some of the blocks in latest license offering are 250 miles or more from shore in more than 10,000 feet of water, further extending boat re-supply and crew change times.
Icebergs and packed ice can cause a rig to move off location. While it may be necessary in some cases, it is very expensive for the operator to move the rig and all attempts are made to keep those occurrences to a minimum. Also, there simply are not enough rigs capable of working in this region. Finally, the wide range of water depths of Eastern Canada’s licenses means rigs have to have the versatility to drill in both shallow and deepwater depths.
To operate in these shallower waters, the rigs must employ a robust 12 point mooring system for which the associated equipment and chain substantially impacts the rig’s variable deck load. Drilling in this region began in 1966 with mobile rigs (excluding platform rigs) drilling 212 wells. Looking at the market since 2000, there have been a total of nine rigs working in the area, five of which are no longer in the region.