Ultra-deepwater drilling day rates back to 2007 peak

Offshore staff

HAMILTON, Bermuda – Seadrill (XOSL:SDRL) has 18 new drilling rigs under construction in various yards. The program includes six new ultra-deepwater drillships, two ultra-deepwater semisubmersibles, one harsh environment jackup, four premium benign environment jackups, four tender rigs, and one semi-tender rig.

Most of the deliveries are scheduled for 2013 and 2014, with the latest due to be completed early in 2015.

The company says the worldwide supply of ultra-deepwater rigs (suitable for operations in up to 7,500 ft, or 2,286 m of water) continues to rise, with eight units ordered outside Brazil this year, compared to 23 units during the first half of last year.

Tendering and contracting for ultra-deepwater rigs remains strong, Seadrill adds, with day rates in the range of $550,000-$650,000, depending on location and contract duration. These levels were last seen in 2007, but this time around there are a growing number of majors and independent oil companies chasing suitable rigs.

The rates spike has led to longer contract durations and more favorable commercial terms and conditions for contractors, forcing oil companies planning future drilling campaigns to step up requests and tenders for available rig capacity. As a result, Seadrill is in discussions concerning ultra-deepwater rig availability in 2014 and beyond.

There also has been a trend for oil companies to take a more direct approach toward the rig owners, with the latter being unwilling to tie up their rigs in lengthy tendering processes.

With the tight supply-demand balance, several oil companies that have not secured sufficient rig capacity will likely have to postpone their field developments. This could have a knock-on effect on future production projections. Seadrill’s preference is for packaged deals like the one arranged with Petrobras in 2007, which included three rigs, each with six years employment.

The Gulf of Mexico, West Africa and Brazil remain the focus of Seadrill’s customers’ ultra-deepwater E&P activities. Recent successes in emerging plays such as offshore Mozambique, Tanzania, Israel and Cyprus will require even more ultra-deepwater capacity.

The market for premium jackups operable in water depths of up to 350 ft (106 m) is also strengthening, with increased tendering activity, higher day rates, and longer contract durations in most markets.

Over the past year, utilization of premium jackups has stayed consistently above 90%, and was at 98% early this month.

During 2010-11, contractors reactivated a large number of stacked units to take advantage of improved market conditions. However, the pace of reactivations has slowed in the last six months with a decrease in the number of units that can be brought back into operational condition.

This, allied to higher demand during the last two quarters, has put upward pressure on day rates.

Seadrill has identified 25 newbuilds set for delivery this year, slightly up on the average of 28 added to the global fleet since 2008.

The company expects day rates to climb by $20–30,000 over the next few months, with demand strongest for high-spec jackups in the Asia/Pacific region.

5/21/2012

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