Offshore rig construction boom continues

New rig constuction has not yet been hit significantly by the global financial turmoil.

Matthew Donovan, ODS-Petrodata

Demand for mobile offshore drilling rigs, particularly for drillships and semisubmersibles with deepwater capabilities, has been strong through much of 2008, and this has fueled a continuing boom in new rig construction. However, recent worldwide financial instability could sink the market. Construction and materials costs for new rigs are high, and an inability to secure financing could make it difficult for drilling contractors to order additional new units, or even complete all of the rigs currently planned, Fig. 1.

Fig. 1. Demand for mobile offshore drilling rigs has been strong through much of 2008.

Presently, 145 mobile offshore drilling rigs are under construction, 41 are on order, and a handful of others are planned, but without shipyard commitments as yet. This represents an increase in rigs on order since January, since 130 rigs were under construction and 45 were on order at the beginning of 2008, Table 1.

At the moment, 44 drillships, 56 semisubmersibles and 83 jackups are under construction, on order or planned. In addition, six offshore tender rigs are under construction, on order or planned. A total of 55 rigs were ordered this year with the latest orders coming toward the end of September, but before the global credit crunch and financial meltdown began.

Most, but not all, of the new offshore rigs under construction or on order are likely to be completed, Fig. 2. Most of the deepwater rigs already have contracts secured, and will begin earning money as soon as they are completed. Things are a little less certain in the jackup market (see sidebar).

Fig. 2. Presently, 145 mobile offshore drilling rigs are under construction, 41 are on order, and a handful of others are planned.

2008 OFFSHORE RIG ORDERS

Oslo-based Seadrill went on a shopping spree of sorts this year, with seven new rigs ordered in 2008, four jackups, two tenders and one semisubmersible. Semisubmersible West Capricorn is on order at the Jurong Shipyard at an estimated cost of $640 million. Construction on the vessel is expected to begin in June 2009, with the rig entering service in 2011.

The four jackups are West Callisto, West Elara, West Juno and West Leda. West Callisto is under construction at the Keppel FELS shipyard. The others are on order at the PPL Shipyard at Jurong, Singapore, and are expected to enter service in 2010, though none of the rigs have been contracted yet. Build costs for the jackups are approximately $210 million for West Callisto and West Juno, and $220 million for West Elara and West Leda.

The tenders are T-12 and a tender yet to be named. T-12 is under construction at the Malaysia Marine & Heavy Engineering yard in Pasir Gudang, Malaysia, while the unnamed tender is on order at Keppel’s shipyard in Tuas, Singapore. T-12 is expected to enter service in 2010, with the unnamed tender ready in 2011. Construction cost of T-12 is estimated at $121 million.

China Oilfield Services Ltd. ordered four jackups in February of this year, with delivery scheduled from 2009 to 2010. Building costs are not known for COSL 921, 922, 923 and 924, which are under construction in China.

Tanker Pacific ordered two unnamed drillships for $650 million each in May. The drillships will be built by Samsung Heavy Industries at its shipyard in Geoje and are expected to enter service in 2011. Tanker Pacific has two more drillships under construction at the same yard. These rigs will enter service in early 2011.

Ensco ordered three more deepwater semisubmersibles in its 8500 series from Keppel FELS in Singapore. The 8500 series is named after the rigs’ capability to drill in up to 8,500 ft of water. The three semis, ENSCO 8504, ENSCO 8505 and ENSCO 8506 are on order, with construction expected to begin in 2009. Building costs for the three are $515 million, $537 million and $560 million, respectively. Once completed, the vessels will join ENSCO 8500, delivered this year, and ENSCO 8501, 8502 and 8503, presently under construction and scheduled for delivery in the first and third quarters of 2009 and the first quarter of 2010, respectively. Construction cost for ENSCO 8500, the first in the series, was about $515 million.

Odfjell Drilling ordered drillship DeepSea Metro I in February and DeepSea Metro 2 in June, at a cost of about $668 million apiece. Both drillships are under construction at the Hyundai Heavy Industries yard in Ulsan, South Korea, and due to be delivered in 2011.

Brazilian engineering and construction company Odebrecht ordered two drillships from Daewoo Shipbuilding & Marine Engineering at a cost of $690 million each in May of 2008. Norbe IX and Norbe VIII are both on order, with construction scheduled to begin in February 2009. The drillships are expected to enter service by 2011.

Odebrecht also ordered two jackups that have yet to be named. Both jackups were ordered in September at an unknown cost. The rigs are expected to enter service in 2011 on five-year contracts with Petrobras. Construction will begin around May 2009.

Ocean Rig was acquired by DryShips in July. In January, before the acquisition, Ocean Rig ordered two drillships for $661 million each. The two rigs are on order, and construction is expected to begin next year at the Samsung Heavy Industries yard in Geoje, South Korea. If construction stays on schedule, the rigs will enter service in 2011.

MENAdrill signed a $364 million construction contract for two jackups with Sharjah-based Maritime Industrial Services in September. Construction has begun on the two rigs, with delivery expected in September and December 2010. So far, neither rig has been contracted.

Norwegian company Sevan Drilling, a subsidiary of Sevan Marine, ordered two semisubmersibles in June. Sevan Driller 2 is under construction at Cosco Nantong in Jiangsu, China, and will be delivered in 2010. Sevan Brasil is under construction at the same yard and will be delivered in 2011. Building costs for the two rigs are undisclosed.

Yantai Raffles got into the rig-building business for itself, rather than a customer, and ordered three jackups on April 10. The three rigs will be delivered in 2009. The Chinese shipyard is investing in the three rigs itself with the intention of entering into charters for the rigs, and then building the rigs specifically to those charters. No charters have been announced yet.

EGAS has two jackups on order from PPL Shipyards in Jurong. Building costs for each jackup are $212.5 million. The rigs were ordered in September, and are expected to be under construction by early December. One will enter service in late 2010, the other in early 2011.

Noble Drilling Corp. has two semisubmersibles and a jackup under construction, and a drillship on order at STX Heavy Industries in Dalian, China. The $585 million drillship is expected to enter service in 2011.

Brazilian contractor Etesco has a drillship on order with Samsung Heavy Industries. ET-VIII was ordered in July for $709 million, but will not enter service until January 2012. It is one of the few rigs ordered this year that will not be ready by 2011. The vessel will join the other Etesco drillship, Peregrine-1, under contract to Petrobras.

Another Brazilian company, Schahin Group, ordered two drillships in June. Construction cost for the first is about $682.2 million, while the second will cost about $709 million. Both rigs are on order from Samsung Heavy Industries, and have received letters of intent for charters with Petrobras, beginning in 2011 and 2012.

SOME PROJECTS AT RISK

Some companies are choosing not to exercise options for new rigs. Atwood Oceanics decided not to exercise its option to have Jurong Shipyards construct another deepwater semisubmersible. Jurong is already constructing a conventionally moored semisubmersible and a dynamically positioned semisubmersible for Atwood at its shipyard in Singapore.

Atwood expects to invest between $750 million and $755 million on the vessel. The shipyard contract value for the unit is $565 million, which does not include certain owner-furnished equipment and owner-related costs. Delivery of the unit is scheduled for mid-2012.

The conventionally moored semisubmersible is valued at $280.5 million. Atwood Oceanics planned to finance the rig construction, expected to run up to $590 million including administrative and overhead costs and capitalized interest, from a combination of ongoing cash flow of Atwood Oceanics Pacific and debt, as necessary, of $300 million raised in bank loans.

Despite its decision not to exercise the option to build more rigs, Atwood said the longer-term fundamentals and outlook for the international deepwater markets that it serves remain positive.

Among the other offshore rigs in the planning stage that may have uncertain futures are semisubmersibles Delba IV, Delba V and Delba VI, and drillships Delba VII and Delba VIII, all proposed for operation off Brazil.

In January, Brazil-based Delba was able to secure $488 million senior secured debt financing for the construction of semisubmersible Delba III from West LB Capital Markets. Delba partnered with InterOil Corp. for the financing. However, the other Delba rig orders are not finalized, as financing has not been confirmed.

Though not contracting for newbuild rigs, Northern Offshore has been unable to complete its acquisition of two semisubmersibles from Transocean. Northern Offshore could not obtain the consent of its lenders for the acquisition and related financing of GSF Arctic II and GSF Arctic IV for US$750 million. While the failed acquisition did not involve the construction of rigs, it does highlight the effect the global credit crunch can have on the offshore industry.

Fig. 3. Rig orders have grown as the average US oil price has increased.

Overall, new rig construction has not yet been hit significantly by the turmoil in the global financial markets, Fig. 3. However, a long period of unwillingness or inability on the part of financial institutions to extend large lines of credit to shipyards and rig owners will lead to a slowdown in new offshore rig construction.