No let-up in demand for ultra-deepwater rigs, says Seadrill

Offshore staff

HAMILTON, Bermuda – Seadrill’s newbuild semi-tender rig West Jaya was due to start work for BP late this month.

Another of the company’s new harsh environment jackups, West Elara, should begin operations offshore Norway in December, subject to weather conditions.

Currently the company has 14 rigs under construction, comprising five ultra-deepwater units, one harsh environment jackup, four premium benign environment jackups, three tender rigs, and one semi-tender rig.

In late December, Seadrill expects to receive the ultra-deepwater semi West Capricorn. However, delivery of another ultra-deepwater semi, West Leo, has been put back until January 2012. The other 12 rigs should be delivered between 4Q 2012 and 3Q 2013.

Seadrill says the general outlook for offshore drilling remains favorable, with contracting activities rising in all market segments. This is driven by increases in spending on exploration and development as oil prices remain high, and by exploration and appraisal successes in existing and new geographical areas.

Demand stays strong for high-spec rigs offering superior technical capabilities, operational flexibility and reliability, says Seadrill. Market sentiment for ultra-deepwater units (up to 7,500 ft, or 2,286 m) has improved significantly over the last months, leading to increased day rates, and bringing employment for four of the company’s ultra-deepwater units including the two newbuilds still pending delivery, West Capricorn and West Leo.

Available ultra-deepwater rig capacity has been virtually absorbed this year and available capacity for 2012 has increasingly been locked in. too. Seadrill foresees continued high contracting activity for this market and further upward pressure on day rates.

The number of ultra-deepwater newbuild orders globally has increased by five to 42 units since late August. However, the expanded fleet will likely be absorbed by the market with no adverse impact on utilization rates or day rate.

Main drivers have been the recovery of demand in the US Gulf of Mexico and continued strong demand offshore Africa. Demand offshore Brazil remains promising, although slight delays in employment of drilling rigs here are lessening the impact on the already tight overall market.

The Asia/Pacific region is also experiencing an increase in deepwater and ultra-deepwater activity, particularly off Australia, Malaysia, Brunei, and Indonesia. At the same time, various ultra-deepwater rigs are being relocated to harsh environments to operate in more conventional water depths due to their technical capabilities.

At present, Seadrill adds, more than 85% of the ultra-deepwater fleet is employed in water depths of less than 7,500 ft (2,286 m), underlining the general preference for modern equipment also for non-ultra deepwater work.

Safety, drilling efficiency, and deck load capacity are the main benefits of these types of rigs for more traditional drilling.

As for premium jackups rated for operations up to 350 ft (106 m) of water, the market remains sound with healthy tendering activity and stable daily rates in most regions. However, the large number of newbuild premium jackups has lessened utilization and day rates of lower-spec units.

Efforts are under way to consolidate the low end of the jackup market, which could lead to accelerated scrapping of units and a better balance for the jackup market going forward, Seadrill says.

Continuing availability of stacked units and the increase in newbuilds has kept day rates in check where ordinarily the growth in demand would have pushed rates up. Nevertheless, use of older units has improved over the past few months, Seadrill maintains, and the number of active jackups today is higher than when the market peaked in 2008.

Demand for high-spec jackups remains strong in the Asia/Pacific market, and has spurred relocation of some high-spec units from other regions. Another factor boosting demand for drilling here is strong consumption of gas and high gas prices in Asia.

Elsewhere, demand for high-spec jackups is also growing in the Arabian Gulf. The utilization rate is high in the southern North Sea and the Danish sector, with a predicted undersupply through 2012. Seadrill sees where this could provide openings for its JU2000E jackups currently under construction.

11/30/2011



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