Rig owners facing challenging times

19 October 2015, News Wires – Everyone in the oilfield services sector is hurting pretty bad these days, but few are in as much pain as owners of offshore drilling rigs.

RigThis point was hammered home late last week by European rig owner Ocean Rig, which posted a fleet update notification with some rather gloomy news.

The company revealed that its two harsh-environment semi-submersible rigs — Eirik Raude and Leiv Eiriksson — will both soon be off hire, looking for work in a lethargic market and likely destined to be cold-stacked.

This is a fate shared by countless rigs in all corners of the world these days, but Ocean Rig’s statement went on to say that it would now “consider all its options, including disposing of or scrapping” the two units.

This, too, is becoming a familiar trend, given the precarious over-supply of rigs that was caused first by a wave of speculative newbuilding activity at the hands of overzealous investors, and then exacerbated by a severe cutback in oil companies’ drilling plans after the past year’s collapse of crude prices.

Rig brokers estimate that some 37 floating rigs have already been scrapped or otherwise taken out of the market of late, and another 70 units are projected to be cold-stacked, cannibalised and scrapped — never to return the market — over the next year or two.

So, what’s so surprising about the Eirik Raude and Leiv Eiriksson potentially being added to this list? The remarkable thing is that those rigs — both large, winterised, high-capacity units — were delivered at great expense only 14 years ago.

Other owners are also seriously considering sending fifth-generation, deep-water rigs to breakers in Turkey, Bangladesh or China to be turned into nails.

Many contractors face the prospect of five-year special surveys for their rigs, often involving investments of tens of millions of dollars in order to secure new certificates. Add to that the cost of stacking rigs for months or years — which can approach $10,000 per day, even if an owner chooses to pinch pennies and do virtually no maintenance — and it’s not so hard to understand the temptation to cut losses and bail out.

After all, many observers don’t expect to see rig supply and demand statistics come back into balance until 2018, if then.

There was, however, another rig owner that issued a statement last week in stark contrast to Ocean Rig’s gloomy note.

Odfjell Drilling revealed that its semisub Deepsea Bergen — built in 1983, a full 18 years before Ocean Rig’s units were delivered — had just undergone its five-year special survey. The cost of the six-week programme was $53 million.

The difference is this third-generation rig has a long-term contract with Statoil off Norway, lasting until mid-2017 and pulling in an estimated $346,000 per day. A five-year survey makes far less sense for rigs without well-paid contractual commitments.

In a remarkable sign of the times, Upstream reported in August that India’s state-run company Oil & Natural Gas Corporation had been overwhelmed with bids from at least 17 work-starved rig owners, collectively offering more than 30 deep-water units, in response to a tender requirement for up to five rigs.

Proud companies with modern rigs, that in years past had turned their noses at minimum-wage Indian contracts, were suddenly fighting tooth and nail to sign on the dotted line.

All eyes will be on that race now, not only in morbid curiosity to see how low the winning dayrates will be, but also to count how many of the rigs that fail to win work end up being sent on a final journey to the scrapyard.

  • Upstream
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