Online exclusive: Floater rig retirements to accelerate through 2015 and beyond

Robin Dupre * Sr. Technology Editor

As a consequence of reduced E&P activity, the floater drilling demand will fall from 2014 levels of 262 units to 220 units in 2016, with an additional 50-70 floaters potentially exiting if the demand stays weak, says Joachim Bjorni, an analyst with Rystad Energy, to Offshore.

Of those 50-70 floaters, 43 are at least 35 years old and represent 41% of the second-, third-, and fourth- generation fleets. Additionally, at least 80 jackups may exit the market too, since 81 of the marketed fleet are 35 years or older.

“The expected demand reduction has contributed to increased oversupply in the floater market and we have already seen increased attrition activity from rig owners in response to this development,” Bjorni said. “We do see the need for further attrition activity from rig owners in response to this.”

Over the period of 2015-2017, the floater market awaits an influx of 64 new units of which 24 units are scheduled for delivery in 2015, 22 in 2016 and 18 in 2017, according to Rystad Energy. Out of the 24 floaters with expected delivery in 2015, 10 units have already been delivered from the yards.

“As a first response to the declining demand outlook, we have seen rig owners delaying delivery dates for their newbuilds,” he added. “Further delivery delays are likely and we can see units scheduled for delivery in 2015 and 2016 being pushed six-12 months or further out in time depending on contractual terms between rig owners and yards.”

However, assuming no further delivery delays, he noted, the scheduled delivery plan will result in a fleet growth in the market by 5% in 2016 and 7% in 2017. While the floater supply is bound for an increase, the demand is set to decrease over the next few years, around a 10% reduction in 2015 and another 7% reduction in 2016. 

“The floater demand is expected to reach a floor in 2016 and increase again by 8% from 2016-2017,” he said. “With demand and supply pointing in different directions, the result will be an oversupply of between 80 and 120 units each year over the period.”

Looking back on historical gross utilization numbers, Rystad Energy noted that there was an average level of 83 over the last 10 years. This historical utilization rate applied to expected demand numbers from 2015-2017 shows a need to retire around 88 units in total over the next three years to balance demand and supply.

“With increased retirements, rig owners will be able to adjust the market imbalance over the next three years,” Bjorni said. “However, for this adjustment to happen, the floater market will have to go through the largest retirement cycle in the history of offshore drilling with 88 units taken out from 2015-2017.”

Additionally, floater rig day rates are about 50% lower than peak rates of years prior with service costs also in decline, experiencing about 15-25% in reductions depending on the type of service being provided. 

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