Volume 3, issue #6 - 25-02-1998

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Semisubmersible dayrates rise dramatically

Jan. 7, 1998 Offshore semisubmersible rigs that drilling contractors couldn't give away a few years ago now command daily rental rates almost high enough to justify new construction, according to industry experts.
"The ideal situation would be to have a drilling contract in hand before building any rig. But I think the market is strong enough that a newly built deep-water rig may be justified on speculation," said Jon A. Marshall, president of Global Marine Drilling Co.
Although no construction plans have been announced, Marshall told, "We're getting numbers from shipyards on semisubmersibles as we speak."
A strong rise in dayrates to record highs for rigs working offshore West Africa sparked moderate increases in other marine markets in the closing days of 1997. "Recent contract dayrates exceed $ 80,000 a day for 300-foot premium jackups and $ 180,000 a day for third-generation semisubmersibles, compared to $ 40,000 and $ 50,000 respectively only two years ago," said John (Jack) G. Ryan, GlobalMarine president and chief executive.
"Two years ago, you couldn't give semis away because it cost too much to tow them to a shipyard to cut up for scrap," said David A. Herasimchuk, vice president of market development for Global Marine.
The latest increase in dayrates pushed Global Marine's worldwide monthly " Summary of Current Offshore Rig Economics," or Score, rating up 1.5 % to 70.3 %. Score represents current rig dayrates as a percent of the estimated rate required to justify building new rigs on speculation. At the 1980-81 peak of the last drilling boom, the Score averaged 100 %.
Score ratings for semisubmersible rigs at 62.6 % have improved strongly over the past five years. Jackups now have a rating of 79.2 %.
North Sea rigs command the highest Score of 82.4 %, up 22.5 % in the past year and 147.9 % in five years. Rigs working in the Gulf of Mexico have a Score of 60.8 %, up 16.4 % in the past year and 73.9 % in five years.
Worldwide, Global Marine's Score averages 70.3 %, up 19 % during the past year and 98.5 % in the past five years.
Many industry experts and outside observers have expressed concern about the ageing fleet of marine rigs, many of which were built 20 or more years ago. But with refurbishments and upgrades, Marshall said, "I think we'll see a 40-year life out of some of this iron. Our programme is focused on getting that kind of service life from our rigs."
However, he noted, "The effective life of a rig has a lot to do with the marketplace in which it works." An active market that generates high dayrates will pay for the repairs and upgrades necessary to keep an offshore rig working.
While dayrates have improved substantially for semisubmersibles and drillships capable of working in water depths of 2,000 feet or more, the jackup rig market doesn't yet justify building any new rigs, Marshall said.
He sees little likelihood at this stage for the kind of overbuilding that created a glut of rigs during the last drilling boom. "Shipyards and delivery schedules are very tight," Marshall said. Although there have been no major delays in delivery of new or refurbished rigs so far, he said, "every equipment manufacturer and supplier is operating at capacity and struggling to meet delivery schedules. It will take a very long time before we have enough spare capacity to overbuild."
The situation is further complicated by the lack of qualified key personnel to work on new rigs. "There is a shortage of drilling talent for deep water, " Marshall said. "We're training now the people we'll need in two years. We're putting them on as extras on existing vessels."
The rigs now working in deep waters around the world are doing exploration drilling. But each deep-water discovery will require at least one rig to develop it as exploration continues, Marshall said.
With deep-water exploration already hot in the Gulf of Mexico and off West Africa, he said, demand for deep-water rigs is escalating. "When Brazil opens up to outside investors, we'll see a large number of new deep-water units being built. This market is going to stay robust," he predicted.
Recent reductions in oil and gas prices are "the best thing for the service sector because low prices increase demand for hydrocarbons," Marshall said. "The last [drilling] boom was based on expectations of higher prices. But this is based on the steady increase in demand."
Low energy prices and the resulting recent low equity prices for drilling contractors' stocks will "mitigate any desire" among nonindustry investors to build rigs on speculation, Marshall said.
Such construction through limited partnerships contributed to a surplus of rigs that took the industry some 15 years to work down.
In its own portfolio, Global Marine has nearly completed the yearlong conversion of a North Sea crew accommodations unit into a deep-water semisubmersible drilling rig, the Glomar Celtic Sea, at a cost of $ 250 mm.
The big rig, longer than a football field, is scheduled to come out of the Amfels shipyard inBrownsville, Texas, during the first week of February and will become operational by midmonth after being fitted with thrusters. Although under a $ 160 mm three-year drilling contract with Elf Aquitaine, it will be farmed out to Union Pacific Resources Corp. for its first job in the Gulf of Mexico
The vessel was built in 1982 at the Mitsui shipyard in Japan as a 600-bed "floatel." Formerly named the Polycastle, it worked in the Norwegian sector of the North Sea before Global Marine bought it last year. It entered the Brownsville shipyard Dec. 27, 1996, for conversion to a semisubmersible rig capable of drilling a 25,000-foot well in as much as 5,000 feet of water.
At dedication ceremonies for the nearly completed rig last month, Amfels officials said that conversion was the most challenging project undertaken by the company.
The vessel's main engines, major equipment, motors, pumps and valves were overhauled during that conversion. The electrical and computer control systems for dynamic positioning and engine power load-sharing were modified and enlarged for new drilling requirements.
Eight new mooring winch cooling systems were added along with bulk and liquid mud and cement systems and other liquid, air and hydraulic lines. The hull was modified to provide a variable deck load of at least 4,500 tons, with the addition of a moonpool, raised decks, racks for drill pipe and risers, and two 80-ton cranes.