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22
FOCUS DRILLING RIGS 20 April 2018

OVERVIEW

Optimism returns for offshore

Industry remains
cautious, but
confidence in
sector rising as
utilisation of units
starts to increase
EOIN O’CINNEIDE
London

W HEN the oil price

party started to
turn sour at the end
of 2014, the offshore
rig market ended up being one of
the sectors hardest hit by what
turned into a prolonged industry
downturn.
Asset-heavy owners were left
with gaping holes in balance
sheets from impairments, yards
saw orders dry up and owners
walk away from newbuilds, while
units that remained active had to
battle for fewer contracts and
reduced dayrates as oil players
mostly turned their backs on mar-
ket segments such as deep-water.
Fast forward a few years and,
while rig owners are hardly ebul-
lient, there is a definite sense of
renewed optimism.
Much-needed consolidation has
largely taken place, while scrap-
ping, although not as comprehen-
sive as many in the market would
have wished, has taken out some
of the older units. 
Newbuild and laid-up tonnage
has necessarily all but kiboshed
fresh orders in what remains an
oversupplied market, but utilisa-
tion is slowly improving, and spe-
cific markets such as the harsh
environment sector are shining a
light through the gloom.
“The strong market moves
made in 2017 would suggest opti-
mism from the drilling industry,”
says Charlie Hockless, lead ana-
lyst offshore at UK-based analysis
outfit VesselsValue.
London-headquartered Clark-
sons Research writes in its 2017 rig
review that “certain key demand
indicators (turned) positive for the
first time in several years” and
that “there was a sense in 2017
that the industry may have finally
started to show some slight signs
of improvement”.
that it expects the M&A trend to been sharply impacted by the other deals, notably taking nine built at Hyundai Heavy Indus-
Ducking for cover continue this year as upstream downturn.” jack-up resales at Sembcorp tries.
Much of these moves revolved capital expenditure rises. Among last year’s most Marine for $1.3 billion. The consolidation has spilled
around merger and acquisition “Given cost efficiencies are still eye-catching M&A deals was Ens- Transocean hatched its $3.4 bil- over into this year, with UK player
activity. Financially stronger high on the agenda, a large vol- co’s all-stock acquisition of lion purchase of Norway’s Songa KCA Deutag in March merging
players have snapped up weaker ume of M&A activity has been Atwood Oceanics in May, which Offshore in May, getting seven with Oman’s Dalma Energy in a
rivals, while others ducked for the driven by the need to achieve closed in October and was valued semi-submersibles.  $320 million deal that increases
cover of bankruptcy protection — economies of scale through the at $1.58 billion.  The dual effect of that deal and KCA’s footprint in the Middle East
with differing results. creation of more dominant com- Analysts at Evercore ISI said at shedding its jack-ups was a onshore drilling market.
In its 2017 end-of-year report on panies with greater scale and a the time the deal was “a major decrease in the fleet size but an
oil and gas M&As, consultancy broader portfolio of assets,” EY step forward for a sector that is increase in overall specification, Through the ringer
giant Deloitte says last year was says. just beginning to see stabilisation with around 80% of Transocean’s Hand-in-hand with this round of
“an offshore rig story”, with com- “With some sectors entering a in terms of contracting and day- fleet now weighted towards the consolidation was a flurry of
panies forced to rationalise capac- recovery phase in 2017, various rates”.  ultra-deepwater and harsh-envi- bankruptcy protection filings,
ity and shore up balance sheets. asset-heavy companies have made Liz Tysall, senior offshore rig ronment sectors. Greece’s Ocean Rig going through
“There is likely limited running counter-cyclical investments by analyst at Norwegian consultancy US player Rowan Companies a restructuring, Seadrill emerging
room for future deals as the num- purchasing businesses at what Rystad Energy, called the acquisi- created the ARO Drilling jack-up from Chapter 11 and the likes of
ber of major players declines, but appears to be all-time cyclical tion “the first step towards a less joint venture with Saudi Aramco Hercules Offshore being put
potential remains for smaller, lows.  fragmented industry”. to wrest long-term control of the through the ringer twice since the
more targeted acquisitions,” “This has been particularly true Norwegian newcomer Borr prized Saudi market, while new- industry downturn.
Deloitte continues. in the offshore drilling sector, Drilling took Transocean’s entire comer Northern Drilling, backed This year, however, has started
Rival EY disagrees, however, which has been struggling with jack-up fleet for $1.35 billion, by Seadrill boss John Fredriksen, with a spring in the step of many
saying in its 2017 industry review significant oversupply and has before following this up with picked up two semisubs being owners, Transocean chief execu-
 20 April 2018
FOCUS DRILLING RIGS 23

‘Sleeping beauty’ owners positioning

for expected boon from oil industry
re rig market THE past year has seen rig-
owning stalwarts position
themselves for an expected
improvement in the oil
industry’s fortunes, with Ensco
replacing Transocean at the top
of the tree, writes Eoin O’Cinneide.
Ensco, which swooped on
Atwood Oceanics in a $1.58
billion deal, not only has the
highest number of units, but
is also ahead on current fleet
value, while Norway leads
the way in terms of owning
countries by value.
“Looking at the size of the
fleet and its breakdown, the
number of rigs is the most
interesting figure,” says
VesselsValue’s lead analyst
offshore Charlie Hockless,
whose data show there are
currently 945 offshore drilling
rigs worldwide.
Of those, 136 are drillships,
180 semi-submersibles and 639
jack-ups, with 118, 158 and 562,
respectively, being live units
and the rest on order.
“Of course we know that a
large proportion of floaters are
laid up, and it is unknown how
the assets themselves will be
reactivated,” Hockless says.
The overall value of the
offshore fleet is $79.11 billion,
with jack-ups worth $44.44
billion, drillships $21.52 billion
and semisubs $13.16 billion.
Following the Atwood
deal, Ensco has 65 rigs worth
$5.97 billion, compared to
the 45 worth $5.03 billion at
Transocean, which last year
sold its entire fleet of jack-ups to
Norway’s Borr Drilling.  the list of the biggest spenders
A year earlier, Transocean
topped the charts with a fleet
of 68 units worth $6.82 billion,
with Ensco in fourth on 60
worth $3.45 billion, VesselsValue
data shows.
Companies connected with
John Fredriksen — comprising
the likes of Seadrill, North
Atlantic Drilling and Northern
Drilling — are in second place
this year with 38 units worth
$5.64 billion, while a year ago
a fleet of 47 units worth $6.13
billion was also good enough for
second spot for the group.  high level of consolidation
China’s CNOOC Group has
climbed up the ranks by virtue
of a rise from $1.97 billion to
$2.73 billion in its fleet value,
while US players Noble Drilling
and Rowan Companies stayed
in the top 10, as did Danish sale
candidate Maersk Drilling.
Norway is the top offshore
rig-owning country by value
at $14.22 billion with 105 units,
while the US has 174 rigs, but
worth just $10.82 billion, the
data shows.  number of active units was up
The UK, with the likes of
Ensco and KCA Deutag, is in
third on $9.62 billion, China
fourth on $6.71 billion and
Switzerland, by virtue of
Transocean, fifth on $5.03
billion.  Clarksons Research says,
Mexico, Singapore, Denmark,
Brazil and Greece — the last
with Ocean Rig in its ranks  Singapore and South Korea
— fill out the top 10.
Borr unsurprisingly tops
since the start of 2017, the outfit
led by Fredriksen’s former
right-hand man Tor Olav Troim
splashing out $2.65 billion on
24 rigs, adding nine resales at
Singaporean yards and Paragon
Offshore’s units to its fleet.
“Troim has seemingly pulled
a company out of nowhere,
raising huge amounts of capital
in a matter of months and now
is part of one of the largest
drilling companies worldwide,”
Hockless says.
The figures point to the
that has taken place in the
rig market in the past year,
which has gone some way to
addressing the supply-demand
balance. However, so many of
Changes: the
jack-up Borr
Norve was
formerly the
Transocean
Honor before
being bought
by the
Norwegian
player in a
major deal
last year
Photo: BORR
DRILLING
the units in companies’ fleets
remaining at shipyards — and
likely to continue to do so for
some time yet — is a concern for
the industry.
UK-based Clarksons Research
says in a March offshore drilling
report that, although the
5% year-on-year in March, 115
rigs remained on order as of last
month.
“Although resale activity has
picked up recently, activity has
not been evenly distributed,”
pointing out that owners are
picking up resales at yards in
but not China, where so many
remain idle or unfinished.
Companies such as Borr that
are taking resales are often
agreeing with the yards to keep
them there for another 12 to 24
months, the research arm of the
rig and shipbroker says.
“These rigs are ‘sleeping
beauties’, intended only to be
woken when market conditions
are right. The eventual effect on
the supply-side may, therefore,
be gradual at first, with units
only being delivered some time
after resale occurs.
“As the market heats up,
however, owners may well
choose to accept units more
quickly. The combined effect of
this may be to delay the impact
of the significant orderbook on
the rig supply-demand balance
for some time.”

Asset switch: the semi-submersible drilling rig Ensco MS-1,
formerly the Atwood Osprey 
tive Jeremy Thigpen saying in
February: “For the first time in
three years we are seeing mul-
ti-year contracts in the Golden
Triangle (of the US Gulf of Mexico,
West Africa and Brazil).  ups — is already improving. Clark-
“The increase in tendering
activity certainly bodes well for
the future.”
The company’s vice president of
marketing and contracts, Roddie
Mackenzie, was equally bullish,
saying: “Now we are beginning to
see the majors returning with a
bang.”
In March, Thigpen told the
SpareBank1 Markets energy con-
ference in Oslo: “2019 looks likely
to be a really good year.”
Ensco chief financial officer Jon
Baksht added at the same event:
“We are starting to see the green
shoots of a market recovery... We
TOP MODU RIG OWNERS BY VALUE
Photo: CONOCOPHILLIPS
Rig Type Live On Order Total
Rigs Total Value* Rigs Total Value* Rigs Total Value*
are seeing more tendering activity
Ensco 62 $4.88 3 $1.13 65 $6.01
and this will result in contract
Fredriksen 29 $3.91 8 $1.57 37 $5.48
awards later this year or in 2019.”
Transocean 43 $4.27 2 $0.77 45 $5.05
Global offshore rig utilisation —
Borr Drilling** 47 $2.01 11 $1.97 58 $3.98
including both floaters and jack-
Maersk Drilling 23 $3.40 23 $3.40
Noble Drilling 28 $3.27 28 $3.27
sons puts it at 66% at the start of
CNOOC Group 44 $2.77 44 $2.77
January (up 3% year-on-year), 67%
Rowan 28 $2.59 28 $2.59
in early February (up 4% from an
Ocean Rig 11 $1.77 2 $0.58 13 $2.35
historical low in February 2017)
Diamond Offshore 26 $1.73 26 $1.73
and 68% in early March (up 4% and
* Total value in US$ billions ** Includes Paragon Offshore Source: VesselsValue
its highest since March 2016). 
Jack-ups were at 67% utilisation
at the start of March, with floaters GLOBAL DRILL RIG FLEET BY TYPE
at 70%, it said.
Clarksons pointed to the high Rig Type Live On Order Total
level of tonnage still left in the Rigs Total Value* Rigs Total Value* Rigs Total Value*
market as cause for concern, how- Drillship 118 $17.16 17 $4.22 135 $21.38
ever, rounding off its year in Semisub 158 $10.64 12 $2.55 170 $13.19
review by saying: “For now, the Jack-up 562 $32.38 77 $12.71 639 $45.09
industry remains cautious, if a lit-
Grand Total 838 $60.19 106 $19.48 944 $79.67
tle more optimistic than this time
* Total value in US$ billions  Source: VesselsValue
last year.”
24
FOCUS DRILLING RIGS 20 April 2018

MARKET

Strength: Maersk Drilling’s ultra-harsh environment rig Maersk Intrepid jacked up at Keppel Fels yard   Photo: MAERSK

Rig dayrate bright spot

Harsh environment segment is one of the few
positives for rig owners, but even here prices
cannot match pre-downturn rates
EOIN O’CINNEIDE
London

T he harsh environment
mid-water segment may
be one of the few current
dayrate bright spots for
rig owners, but even in this thriv-
ing niche the pre-downturn rate
peaks can appear far off.
between $180,000 and $300,000
per day, and while the UK harsh
environment segment was also on
the rise, rates there were just
$120,000 to $180,000 per day.
Clarksons data shows the over-
all mid-water floater market aver-
ground yet to be made up before
owners start generating mean-
ingful returns.
For the harsh environment
mid-water segment, rates in Nor-
way were around $550,000 per day
in early 2014 and some $370,000 in
RIG DAYRATES
700

600
HIGH SPEC JU
LOW SPEC JU
FI ULTRA-DEEP
FI DEEPWATER
“The relative strength of the aging around $130,000 per day at the UK market, and even back as 500 FI MIDWATER
US$ THOUSANDS PER DAY

Norwegian market has become the start of this year, up from far as early 2009 both were at
increasingly clear in recent some $110,000 in late 2016, but $400,000 per day or above.
months, with rate assessments still a far cry from the peaks of The deep-water and ultra-deep- 400
now clearly above most $350,000 and $410,000 in early water segments, however, con-
ultra-deepwater benchmark mar- 2014 and early 2008, respectively. tinue to see flat dayrates as
kets,” UK-based analysis firm Current mid-water dayrates increasingly risk-averse players 300
Clarksons Research wrote in an may be up from a low point 18 have by and large yet to be
offshore rig report last month. months or so ago, but before that, tempted back into some of the
At the end of February, harsh the last time they were this low more challenging or frontier 200
environment floaters working off was in early 2005, the data shows, plays.
Norway were commanding giving some indication of the Deep-water rates were stuck at
100
around $130,000 at the start of
At the end of February, harsh this year, down from highs of
$430,000 or so in early 2014, while
environment floaters working off ultra-deepwater floaters were
0
JAN-96
JAN-97
JAN-98
JAN-99
JAN-00
JAN-01
JAN-02
JAN-03
JAN-04
JAN-05
JAN-06
JAN-07
JAN-08
JAN-09
JAN-10
JAN-11
JAN-12
JAN-13
JAN-14
JAN-15
JAN-16
JAN-17
JAN-18

earning around $150,000 in Janu-

Norway were commanding between ary, well down on the highs of
$180,000 and $300,000 per day. $570,000 in early 2014 or touching
SOURCE: CLARKSONS
$600,000 in 2008.
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26
EUROPE
Better days on
the horizon for
sector off
Norway
Dayrates starting to rise again for battered and bruised contractors as
offshore field development and exploration work gains strength
STEVE MARSHALL
Oslo
T he tide appears to have
turned in Norway’s rig
market as dayrates are
starting to rise again on
increasing demand, driven main-
ly by resurgent field development
activity and renewed exploration
work.
However, a debilitating three-
year slump has taken its toll on
the hard-pressed sector as a con-
tract drought, cancellations,
plunging dayrates and rig lay-ups
have left players reeling from
shrinking revenue and asset
write-downs, triggering hundreds
of redundancies.
Some, such as rig giant Seadrill,
have been pushed to the brink of
bankruptcy in the battle to
restructure debt-laden balance
sheets.
Another stalwart contractor,
Fred Olsen Energy (FOE), has seen
its entire eight-rig fleet laid up due
to the downturn, and risks going
to the wall as cash dries up,
despite having now gained a
short-term charter with BP for one
rig.
However, there have been con-
FOCUS DRILLING RIGS
trasting fortunes as other players
such as Songa Offshore and Odfjell
Drilling have been able to ride out
the slump by having modern rigs
fixed on longer-term contracts,
and by cannily securing decent
charters before the bottom fell out
of the market.
The resultant shakedown has
not been without its benefits. Con-
solidation has taken place, with
Songa now acquired by Transo-
cean. Contractors have found
ways to cut costs. And new players
have emerged, with Borr Drilling
and Northern Drilling taking
their places in a shifting market
landscape.
Further consolidation is also on
the horizon as major jack-up
player Maersk Drilling is up for
sale, with US rival Rowan reported
to be a potential buyer.
A mood of cautious optimism is
now returning to the sector based
on higher North Sea tendering
activity, despite the fact that
about 16 of the Norway-compliant
fleet of 36 floaters remain laid up.
This is predicated on the harsh
environment conditions and
strict operating requirements of
the Norwegian market that make
this segment ripe for a recovery
ahead of others.
Analysts see an increasing
tightening on the supply side for
specialised harsh-environment
rigs, as several older floaters have
been scrapped and another 10
cold-stacked rigs are seen as
unlikely to return to the market
due to high reactivation costs rel-
ative to prospective dayrate earn-
ings.
Transocean has signalled that
three older Songa rigs are likely to
be scrapped, while FOE is also
likely to ditch further units.
Clarksons offshore rig analyst
Ingolf Gillesdal has forecast that
harsh environment rigs could see
full utilisation off Norway as early
as this summer, though mainly
due to seasonal demand for drill-
ing work such as plugging and
abandonment.
“All of the warm rigs are con-
tracted out for 2018 and most
likely will be for 2019,” Gillesdal
says.
Things look even better on the
jack-up side, where nearly all of
the 10 to 12 Norway-compliant
units are working under contract,
according to the analyst.
In particular, Maersk’s quartet
of so-called XL Enhanced rigs are
employed at premium dayrates of
around $400,000 on long-term
contracts signed before the slump,
compared with current jack-up
rates off Norway of around
$225,000.
Efficiencies
Indeed, there is an increasing
preference among operators for
newer sixth-generation tonnage
with a higher level of drilling effi-
ciency, with such units now at a
premium.
It is not surprising then that
recent fixtures for modern harsh
environment floaters have seen
dayrates approaching $300,000,
up from bare-bone levels of about
$150,000 or less, with rates
expected to rise further.
Operators such as Statoil, Aker
BP and VNG have been keen to
lock in relatively low dayrates for
harsh environment units to carry
20 April 2018
out development drilling work on
upcoming field projects, as well as
exploration in areas such as the
Barents Sea.
Newcomer Northern, backed by
Seadrill’s billionaire investor John
Fredriksen, and others have
snapped up stranded newbuild
harsh environment semisubs
from yards, while Awilco Drilling
recently placed a first newbuild
order in four years for an advanced
harsh environment mid-water rig
at Singapore’s Keppel Fels, in
anticipation of a rising market for
such rigs.
However, a return to the heady
dayrates of around $600,000 seen
at peak rig utilisation in 2014
seems unlikely, especially given
the industry’s strong focus on
working with contractors capable
of keeping a lid on costs and drill-
ing more efficiently.
Gillesdal says contractors are
now more profitable at lower day-
rate levels after cutting operating
costs by as much as 30% to levels
of around $140,000 per day for
high-spec harsh environment
rigs.  Transocean chief executive
20 April 2018
Above water: Odfjell Drilling’s
relatively modern fleet of rigs has
helped the company ride out the
downturn better than most
Jeremy Thigpen says “the biggest
floater opportunities are in Nor-
way and the UK” and “there is a lot
more excitement and energy in
the market than 12 months ago”.
He believes there is an acceler-
ation in harsh-environment rig
activity that is likely to see day-
rates quickly reach $350,000, with
utilisation set to rise going into
next year.
However, the future apparently
belongs to a handful of high-qual-
ity and well-capitalised contrac-
tors with a strong operational
track record and differentiated,
modern rigs with a high level of
drilling efficiency.
Gillesdal says “rig contractors
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will be pushed on costs and effi-
ciencies” as operators seek to
maximise project profitability.
Recent moves by Aker BP to
forge contractor alliances, such
as with Odfjell Drilling, are a
likely precursor for similar
arrangements by other operators
in efforts to cut costs and stimu-
late efficiency, while big strides
are being made in digitalisation
and automation of drilling opera-
tions.
Ensco’s chief financial officer
Jon Baksht believes there are
“green shoots of a recovery” in the
market, but he underlines: “It is
the newer rigs that will win the
work.”
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Borr jacks-up its position quickly
to take top spot among rivals
LARGEST FLEET
ACQUIRED
IN ONLY 15 months, Norwegian
start-up Borr Drilling has pro-
pelled itself to the top of the list of
the world’s jack-up rig players,
overtaking the likes of Seadrill,
Rowan, Ensco, Noble and Maersk
Drilling with a comfortable mar-
gin, writes Beate Schjolberg.
With its recent acquisition of
Paragon Offshore, the Oslo and
Dubai-based company’s fleet of
premium jack-ups numbers 24,
well ahead of its rivals with
between 10 and 16 rigs apiece.
Borr also owns 25 older units
that may be heading for the scra-
pyard if they fail to win new con-
tracts or get their current ones
extended.
Set up by Tor Olav Troim and
Fredrik Halvorsen, former associ-
ates of Seadrill founder John Fre-
driksen, Borr has raised $1.855
billion in four share sales since
December 2016, convincing inves-
tors that there is money to be
made by investing at the bottom
of the industry cycle.  nine have already been sold for
The company and its biggest
owner Schlumberger are confi-
dent they will cash in as demand
picks up and the scrapping of
older vessels makes modern units
more attractive.
“Borr is now close to the finish
line building the leading jack-up
company, both in terms of opera-
tions and assets,” the company
said in its 2017 annual report pub-
lished last week.  activity to eventually increase in
“There are clear signs that we
have passed the bottom of the off-
shore drilling cycle and the activ-
ity level is picking up.”
Tendering has increased “sig-
nificantly” in recent months,
which should start affecting day-
rates going into 2019 as cost sav-
ings and higher spending budgets
help oil companies boost activity,
according to Borr.
The company has built its fleet
through rig acquisitions from
Hercules Offshore, Transocean
and newbuild orders from Keppel
Fels and Sembcorp Marine’s PPL
Shipyard in Singapore.  fleets and consolidate the frag-
The Paragon acquisition adds
two high-specification units built
in 2013 and 2014, respectively,
which alone justified the acquisi-
tion price of $232.5 million,
according to analysts.
The first of the 14 newbuilds
were delivered last year, while the
remaining are due to be completed
one after the other until the end of
2020.
Though most of the expansion
is now complete, Borr is still ready
to make further acquisitions of
single rigs or rig players, provided
the assets fit its fleet and can be
acquired at a “significant dis-
count” to expected newbuilding
Designer.aspx
Influence: Schlumberger chief execuitve Paal Kibsgaard
prices, the company said after the
February Paragon purchase.
As for its older units acquired
from Paragon and Transocean,
scrap and 25 units are regarded as
non-core.
Almost half of the global jack-up
fleet are more than 30 years old,
and a large number of these 257
units are unlikely to drill again,
according to Borr.  term contracts as it expects rates
With about 40% of the global
jack-up fleet, excluding new-
builds, currently off contract,
analysts also expect scrapping
the jack-up market.
However, for now, many jack-up
owners are holding on to their
older units to see if there is more
work to be found when the market
improves.  which has a 14.4% stake in Borr, is
While owners of semi-submers-
ible rigs have scrapped about one-
third of the global fleet since 2014,
only 3% of the jack-ups have
headed the same way, partly
because they are cheaper to stack,
according to rig brokerage Bassoe
Offshore.
“Responsible owners should
take steps to rationalise their
mented market,” Borr chairman
Troim said when the Paragon
acquisition was announced.
Though only two of Paragon’s
units are likely to remain within
Borr in the long run, the transac-
tion brought Borr another valua-
ble asset  — a complete, experi-
enced organisation to handle its
rapidly growing fleet.
“With the Paragon acquisition,
Borr has gained much more than
if they had developed themselves
organically, and the deal fits per-
fectly with all aspects of Borr’s
strategy to be the world’s largest
premium jack-up drilling rig
owner,” Bassoe analyst David
27
Photo: PER THRANA
Carter Shinn noted at the time.
Borr’s order backlog is so far rela-
tively thin, with only four units
on contracts that all end before
the year is out. 
In addition, 10 of Paragon’s rigs
are currently committed with an
order backlog worth $204 million. 
However, even though tender-
ing is picking up, Borr is not in a
hurry to commit its fleet to long-
are likely to keep rising over the
coming years.
“The board is cautious about
pursuing contract opportunities
that are long-dated at current day-
rate levels, and therefore share-
holders should expect significant
uncontracted capacity for 2018,”
the company said last week.
Meanwhile, Schlumberger,
pushing for new contract strate-
gies to boost earnings and estab-
lish closer ties between oil compa-
nies and providers of drilling
services and rigs.
The company is keen to see a
shift towards performance-based
contracts in the shallow-water
drilling segment, as is already
common within onshore drilling
contracts, Schlumberger chief
executive Paal Kibsgaard said last
year.
“We have a range of customers
who are already pursuing perfor-
mance drilling contracts offshore
in shallow water,” where con-
tracts traditionally do not include
the rig, Kibsgaard said on a con-
ference call last October.
“What we are seeing now is sev-
eral customers are trying to bring
the rig into play. Our rationale for
investing in Borr is generally to
get closer to one of the rig provid-
ers to try to drive this new behav-
iour and establish performance
contracts including the rig,”
Kibsgaard said.
18/04/2018 11:58:10
28
FOCUS DRILLING RIGS 20 April 2018

EUROPE

Awilco takes a bold gamble w

UK-based player
makes a splash
with order of
semi-submersible
from Keppel
Fels — the first
order for a new
rig in four years
STEVE MARSHALL
Oslo

P UTTING cash on the table

for the first rig newbuild
order in four years has
turned low-profile Awilco
Drilling into the talk of the drill-
ing market — and the counter-in-
tuitive gamble could prove trans-
formative for the small UK-based
contractor.
The idea of new rig orders has
been anathema in the downturn,
as the likes of Seadrill have been
forced to cancel speculative new-
builds ordered during an earlier
boom, leaving yards with
stranded assets on their hands
amid a mostly oversupplied rig
market.
While such assets have been
acquired in cut-price deals by
opportunity-seeking newcomers
such as Northern Drilling and
Borr Drilling, no one has previ-
ously been prepared to make the
risky bet on a fresh newbuild,
despite signs of improving market
fundamentals.
Awilco chief executive Jon Oli-
ver Bryce believes, however, that
there is a compelling commercial
logic for the company’s $425 mil-
lion order of the advanced
harsh-environment semi-sub-
mersible unit at Keppel Fels, with
delivery scheduled for March 2021.

Three more options

The ambitious transaction, which
has been six years in gestation,
could ultimately see the Oslo-list-
ed contractor add a total of four
such Moss CS60 ECO MW-design
units to its existing two-rig fleet,
given it has three newbuild op-
tions at the Singapore yard.
“We firmly believe the
harsh-environment semisub
space is an emerging hot spot in
the market and we are looking to
become a leading player in this
segment,” Bryce says, with the
contractor seeking to challenge
the hegemony of Songa Offshore,
now acquired by Transocean.
Supply has tightened signifi-
cantly for such specialised
harsh-environment units,
designed for year-round operation
off the UK and Norway including
the Barents Sea, as the number of
available rigs has been cut to
around 60 after scrapping of more
than 100 units since 2014, accord-
ing to Bryce.
He explained there has been a
dearth of orders for such mid-wa-
ter rigs over the past 20 years as
owners have preferred to order
deep-water units that could com-
mand higher dayrates. Deep-wa-
ter rigs are not ideally suited to
Banking on demand: Awilco Drilling chief executive Jon Oliver Bryce 
harsh-environment work,
though, as they have dynamic
positioning systems that make
them uneconomic to run and also
may have hulls designed only for
benign waters, Bryce says.
“Therefore, mid-water harsh
environment is a protected mar-
ket segment. Given supply has
been decimated, there is expected
to be an undersupply if demand
returns to previous levels. So we
expect this newbuild to enter the
market at a high dayrate level,” he
says.
Awilco’s confidence in the spec-
ulative order is underpinned by
dayrates that have recently risen
to a level of around $300,000 for
sixth-generation rigs in the Nor-
wegian market, up from sub-
$200,000 during an earlier slump,
as field development work and
exploration fuels tendering activ-
ity.
Advantage in design
Furthermore, Awilco claims the
high-specification newbuild rep-
resents “a game-changer in drill-
ing design and technology” as it
targets an increasing market pref-
erence among operators for mod-
ern units that are able to drill
wells more efficiently in order to
cut operating costs.
The unit, rated for a water depth
of up to 1500 metres, will be
equipped with 12-point thrust-
er-assisted mooring, which con-
sumes less fuel than dynamic
positioning, and a hybrid power
system with five smaller engines
rather than the standard eight.
It will also have automated
drilling controls and employ digi-
talisation for key functions such
as condition monitoring for main-
tenance, a method that the com-
pany says will facilitate continu-
ous certification, thus reducing
downtime.
As a result of reduced fuel con-
sumption and efficiency gains,
Awilco estimates the rig will
deliver savings of between $25,000
and $30,000 per day in operating
costs compared with competing
units.
Bryce claims the contractor has
secured the “best fit-for-purpose
mid-water rig, at the best price
and for the best terms”, with the
newbuild price of $425 million —
around $200 million lower than
comparable units ordered pre-
slump, and significantly below
the $550 million price paid by a
mystery buyer for the Moss
CS60-design Stena Midmax
semisub recently sold by Samsung
Heavy Industries.
Price is right
He believes Awilco has gained a
bottom-of-the-cycle newbuild
price and that a subsequent order
for a similar unit could now be
around $75 million higher.
Awilco, which has raised $65
million in equity for the order, has
also taken advantage of the yard’s
pressing need for work by baking
favourable terms into the deal to
 20 April 2018
FOCUS DRILLING RIGS 29

Deal for semisub divides opinions

with newbuild
AWILCO Drilling’s order of
a harsh-environment semi-
submersible at Singapore’s
Keppel Fels earlier this year
has given fresh impetus to the
ailing rig market, but it has
also split market opinion on the
wisdom of the deal, writes Eoin
O’Cinneide.
The $425 million order for one
firm mid-water unit also came
with a trio of options, with the
firm unit set to hit the water in
early 2021.
“If you believe in the mid-
water harsh environment
market, this is one of the best
deals you can do,” David Carter
Shinn, partner and head of data
services at Norwegian analysis
company Bassoe Offshore,
wrote in a report released after
the order was revealed.
“We’ve talked about the
potential shortage of premium
semisubs for the Norwegian
sector for a long time. And we
expect to see more orders this
year as the hottest segment of
the rig market keeps heating
up,” he added.
Indeed, there has long
been an acknowledgment
in the market that the
harsh-environment sector —
principally in the North Sea,
Norwegian Sea and Barents
Sea — was likely to be the
hottest spot for floating
drilling units coming out
of the prolonged rig market
depression.
Transocean chief executive
Jeremy Thigpen said in
September: “When people
talk about how there is this
huge supply and demand gap,
I’m telling you, for the better
rigs, there’s not a lot of supply.
Demand is going to pick up,
dayrates will improve.”
Ensco counterpart Carl
Trowell said in October: “We
believe the offshore drilling
sector is entering a recovery
phase following an extended
downturn...  Now is the time
to make counter-cyclical
investments in the highest-
specification assets.”
Awilco’s order was a classic
counter-cyclical move, with
Clarksons Research noting in
a recent drilling report that it
was the first order for a floater
since 2015 and for an offshore
drilling unit of any kind since
2016. “The agreement is widely
seen as a way for Awilco to take
advantage of the low newbuild
prices currently being quoted
by yards, while also refreshing
its ageing fleet and increasing
its exposure to the North Sea
market, where rate assessments
have increased significantly in
recent months,” the research
outfit writes.
However, not all were
convinced by the order. The
chief executive of one rig owner
told Upstream: “I think it’s mad.
For anyone to go out and order
a newbuilding right now... does
not make any sense.” 
The source added that
there were up to 10 idled and
newbuild units set to come into
the market soon.
“It is a single activity rig for
$450 million. But people have
bought dual-activity harsh
environment semis for $500
million and $400 million in the
cycle. So how the economics
work on that deal, I’m not so
sure that this is a good deal for
anybody — for the market or for
the company.”

SOLUTIONS TO TODAY’S CHALLENGES

ENSURING TOMORROW’S SUCCESS
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Photo: AWILCO DRILLING

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30
AMERICAS
US Gulf demand to stay flat
Rig count in US waters now half what it was in 2014, but
numbers are set to increase slightly in Mexican sector
KATHRINE SCHMIDT
Houston
R IG demand in the
deep-water US Gulf of
Mexico is expected to re-
main largely flat for the
rest of 2018, potentially shedding
a few units, analysts and data in-
dicate.
However, there is excitement
about new deep-water activity
south of the border in the Mexican
sector of the Gulf, though rig
demand is expected to be modest
there to start.
A total of 21 to 23 rigs are under
contract in the US Gulf for 2018,
according to data from the US
Bureau of Safety & Environmental
Enforcement, Clarksons and Wood
Mackenzie.
“We are seeing some of the
numbers are a little bit down for
this year in the US Gulf,” Leslie
Cook, principal analyst, upstream
supply chain with Wood Macken-
zie, told Upstream.
“We’ve seen a steady decline in
total wells drilled in the deep-wa-
ter Gulf of Mexico over the past
three years. And we are looking at
somewhere around a 20% or so
drop in spuds this year before
picking back up again in 2019.”
Today’s count is less than half
the deep-water rig count in 2014,
which averaged out to 46 for that
year before declining to levels
FOCUS DRILLING RIGS 20 April 2018
Possible
appraisal
work in store:
the semi-
submersible
Ensco 8503 
Photo: COBALT
INTERNATIONAL
ENERGY
around 43 in 2015, 30 in 2016 and
23 in 2017, according to the compa-
ny’s data.
On the other hand, Mexico is
poised for a modest increase in
demand as the first operators
granted deep-water contracts in
Murphy Oil has also said it plans
to drill its first wildcat in the
Salina basin by the end of this
year, though regulators have not
yet signed off on its plan. 
That company has the Trans­
ocean drillship Deepwater Asgard,
of the work by these rigs is set
to be large-scale development
drilling, both on new develop-
ments such as Hess’ Stampede,
Shell’s Appomattox and Vito, and
BP’s Mad Dog 2 as well as tiebacks
and infill drilling on existing
nity for some companies to pick
up a rig at the low rates. Anadarko
will be down to two rigs after the
early termination of the Rowan
Resolute coming up in June, while
Llog Exploration is down to a sin-
gle rig, the Seadrill West Neptune,
2016 initiate operations. currently working at the Medusa hubs. due to roll off contract in Novem-
However, Evercore ISI told cli- field in the US Gulf, under contract That has helped fuel strength ber.
ents in a note: “Transocean until February 2019. among players such as Trans­ The semi-submersible Ensco
believes Mexico could take three Statoil and BP have also had ocean, Evercore ISI highlighted in 8503 and 8505 units have been
(deep-water) floaters by year end; plans approved for Salina basin a recent note to clients, also citing working on short-term contracts
however, not all will necessarily wells in Mexico, but that work is anecdotal evidence that the units for independents such Walter Oil
be incremental as operators may not planned for until late 2019 and “are operating significantly more & Gas and Deep Gulf Energy,
mobilise existing rigs to the 2020, respectively. efficiently than precedent would respectively, and are seen as can-
region.” Rig-sharing may also emerge as suggest”. didates for other such near-term
a theme in the Mexican market, work.
On the move given that many players have Fresh discoveries The 8503 drilled Talos Energy’s
In one example, BHP has the partnered with one another in The region has seen two recent groundbreaking Zama discovery
Transocean drillship Deepwater various combinations on the var- exciting discoveries  — Shell’s last June, and accordingly might
Invictus working at its Shenzi de- ious blocks, Cook suggested. Whale in the Perdido fold-belt, be looked to again with appraisal
velopment in the US Gulf. The Rig rates are a tale of two sce- and Chevron’s Ballymore  — but work planned in the next year or
Australian operator has said once narios in the region at present. In due to the capacity already booked so.
finishing up there, that unit will the US Gulf, some 60% of the count they are seen as unlikely to gener- An executive with Pemex
go first to Trinidad for a two-well is made of up of long-term con- ate incremental rig demand.  recently said that the Mexican
programme, then head to Mexico tracts to top global supermajors However, given Shell’s recent state oil company would be
in late 2018. that were penned at the height of major acreage buys in Mexico, one searching for a rig to start
There it has been recently the oil-price climb. might expect the migration of one appraisal on its part of the Zama
authorised for an appraisal well Shell has five such rigs, BP three of its rigs south of the border in discovery this year. 
and an exploratory probe at the and Chevron two. Contracted out the coming years. However, it may yet stick with
Trion discovery in the Perdido to as late as 2028 in the case of Rigs contracted on shorter-term the Grupo R Centenario and
fold-belt, where it has a joint ven- Shell, with dayrates ranging gigs have some of the lowest Muralla IV semi-submersibles it
ture with Pemex. between the lower $400,000s and dayrates globally, between has used for its deep-water drill-
France’s Total has also won lower $500,000s, those units are $140,000 to $150,000, according to ing needs in the past few years,
approval for a wildcat in the Per- among the most expensive in the Clarksons. potentially with a rate negotiation
dido fold-belt by the end of 2018.  world at present, Cook said. Much But there may be an opportu- in the cards.
20 April 2018
FOCUS DRILLING RIGS 31

Upgrades NORTH AMERICA

win over
newbuilds
WHILE drillers across the
board see the market for rigs
improving through 2018, they
still generally favour upgrades
to newbuilds, writes Caroline
Evans.
Helmerich & Payne (H&P),
which earlier this year had 171
super-spec units operating at
about 98% utilisation, believes
there are another 200 to 250 rigs
in the industry where upgrades
to super-spec capacity would
be “economically feasible”, and
claims to own about half of
those.
“The key takeaway here
is that H&P is uniquely
positioned to grow its active
rig count without building new
rigs, whether that be under
improved commodity pricing
or the range-bound pricing
we’ve experienced most of this
past year,” president and chief
executive John Lindsay said. 
“This successful strategy
has allowed us to grow market
share from 15% to 20% in the US
land fleet and over 30% in the AC
drive market.”
Patterson-UTI also expects
the market for super-spec rigs to
remain tight in 2018.
The company estimates
there are about 550 super-spec
units, and expects utilisation to
exceed 95%. Uptick: US rig numbers are on the increase  Photo: AP/SCANPIX
Patterson-UTI has 130 super-

Land drillers benefit

spec rigs, 98% of which have
contracts, chief executive Andy
Hendricks said.
The company completed
seven upgrades to its
Apex-XK model, and has seen

from market upswing

“incremental” interest in its
Apex-PK model, Hendricks said
on an earnings call earlier this
year.
“As such we have customer
contracts to support upgrades
on five additional rigs, two of Higher working rig numbers expected from improving
which will become APEX-XK
rigs and three will become oil price and more unit efficiencies
APEX-PK rigs,” he said.
“All these rigs are expected to CAROLINE EVANS
be delivered in the first half of Houston
2018,” he added.

For its part, Precision Drilling
plans to spend about $34 million
on upgrades to 10 to 20 rigs in
2018.  report higher working
Precision’s chief executive
Kevin Neveu said the company
would consider additional
upgrades if the contract terms
are attractive enough, but
pricing is still expected to keep
a lid on newbuild programmes
this year.
“Contract terms are not
long enough yet, and dayrates
probably need to be much closer
to or even over $30,000 per day,”
said  Neveu.
“So, I think we’re still a
little ways away for us to be
completing newbuilds. But I
think if the market moves that
direction we would probably
have utilisation levels of our
US fleet approaching 90 rigs or
maybe higher.  half in the fourth quarter of 2017
“We have dayrates across
the fleet that look essentially
stronger.”
Nabors chief executive
Anthony Petrello also said his
company is focusing on paying
down debt and generating
returns rather than newbuilds.
N
ORTH American land
drillers are expected to
rig numbers in the first
quarter as the market improves,
helped by higher oil prices and
more efficient drilling units.
At the end of the fourth quarter
2017, Calgary-based Precision
Drilling was running 65 rigs in
the US, its highest market share
since it entered the country in
2006.
The company expects its US
land rig count to hit the low-70s in
the first quarter, “with customer
indications for further rig activa-
tions during the second quarter”,
chief executive Kevin Neveu said
earlier this year.
The company, which operates
rigs in both the US and Canada,
saw drilling activity increase by
compared to the same period a
year previously.
“The improved commodity
prices are providing a nice tail-
wind, but the efficiency and per-
formance of our Super Triple rigs
is propelling us forward,” Neveu
said during the company’s
fourth-quarter 2017 earnings call.
The Super Triple units —
pad-walking rigs with long-reach
horizontal capability — are suited
especially for drilling the longer
laterals used in many North
American basins.
A tightening market for the rigs
means dayrates for the units are
now approaching the mid-
$20,000s, about $10,000 higher
than the lows in 2016.
Extended reach
Meanwhile, average dayrates in-
creased about $200 from the third
quarter 2017.
The same appears to be true for
other drillers marketing more effi-
cient rigs with extended-reach
capabilities.
Patterson-UTI saw a $630
increase in average rig revenue
per day during the fourth quarter
of last year, although that was off-
set somewhat by a $350 increase
in average rig operating costs per
day.
Helmerich & Payne’s adjusted
average rig revenue per day
increased by $483 to $22,167 dur-
ing the most recent quarter, while
the average rig expense per day
decreased by $359 to $13,546.
“Pricing in US land is led by
super-spec rigs, and the main
driver in rig pricing today is the
near full utilisation of the
high-capacity super-spec US land
rig fleet,” Helmerich & Payne chief
executive John Lindsay said on an
earnings call.  Nine of the contracts are for rigs
“The primary reason customers
want super-spec rigs is the fact
that lateral lengths have increased
to the extent that this is pushing
the limits of the standard AC drive
rig fleet.”
“We define super-spec rigs as AC
drive, 1500-horsepower, 750,000-
pound hook load, pad capability
and 7500-psi mud systems,” Lind-
say said.
Meanwhile, Patterson-UTI’s
average North American rig count
rebounded in the fourth quarter to
161 over 68 in 2016.  The company also won an
The driller got an additional
boost in March, when it had an
average of 172 drilling rigs operat-
ing.
Nabors also said earlier this
year it expects to add “several”
working rigs to its Lower 48 US
fleet.  With oil prices hovering
around $70 per barrel and efficien-
cies driving break-evens lower in
many shale basins, operators are
sending rigs back to work.
Additionally, Precision has
added 21 long-term contracts, pri-
marily in the US, since the end of
the third quarter 2017. 
in the Permian basin of Texas and
New Mexico, four in the Anadarko
basin of Oklahoma, and the rest
are spread among various other
shale basins.
“With an increasing proportion
of super-spec rigs, as well as the
favourable repricing of short-term
contracts, average rig revenue per
day is expected to increase
sequentially by approximately
$300 in the first quarter average,”
chief executive Andy Hendricks
said. 
undisclosed number of term con-
tracts for rigs in the fourth quar-
ter of last year that added about
$540 million of future dayrate
drilling revenue, an increase of
about $70 million from the third
quarter.
32
FOCUS DRILLING RIGS 20 April 2018

SOUTH AMERICA

Brazil bouncing back as charte

Petrobras and
other players
including Shell,
Statoil and Total
give impetus to
a rig market that
had been off the
boil for years
FABIO PALMIGIANI
Rio de Janeiro

R IG chartering activity in
Brazil is gaining pace af-
ter several years of stag-
nation, as the country
considered a key part of the so-
called golden triangle of deep-wa-
ter developments  — alongside
West Africa and the US Gulf of
Mexico — is finally rebounding.
Earlier this decade, Brazil was
the honeypot for drilling compa-
nies, with Petrobras alone respon-
sible for the simultaneous opera-
tion of more than 70 rigs on
long-term contracts — about a
third of the world’s deep-water
fleet.
This bonanza period, when
state-of-the-art rigs were being
chartered for dayrates of over
$600,000, is long gone.
And while Petrobras has
reduced its fleet to a mere 23 units
due to the oil price meltdown and
the aftermath of the Car Wash
corruption scandal, there is
already growing evidence that
Brazil will lead the way in fixing Workovers: the Petroserv semi-submersible rig Catarina 
a troubled deep-water drilling
market and again become the land this growing interest will drive an ble of working in up to 450 metres in a matter of weeks to charter could reach into the upper 30s by
of opportunity. increase in tendering activity in of water, and what sources one or more advanced ultra-deep- 2022, as the oil giant will likely
The state-controlled player and 2018 and 2019 for projects com- described as a “hybrid” unit that water drilling rigs for work on the require a large batch of units ded-
a number of international oil com- mencing in late 2019 and 2020,” can be either moored in water Mero pre-salt field in the Santos icated solely to development drill-
panies with offshore assets in Bra- says a source. depths of 700 metres or operate basin. ing in the pre-salt.
zil have recently flooded the mar- using a dynamically-positioned The plan, according to sources, “With new demand expected
ket with several requirements for Bidding heats up control system in over 2200 is that Petrobras will offer three- from Shell and other majors, the
rigs to start operations in 2018 and In a more immediate horizon, metres of water. year contracts to have rigs drilling total number of floaters on con-
2019. Petrobras was set to receive bids Petrobras is offering two-year development wells at Mero next tract in Brazil could hit around 40
“Brazil is becoming once again on 20 April to contract a pair of charters in both categories and year, ahead of commercial output rigs by 2021,” he writes in a report.
a bright spot for increased off- rigs to operate off Brazil, the first intends to use the rigs to carry out eyed for late 2021 via the Guana- Besides the 23 units employed
shore activity, as several interna- such competition in more than workover operations in a number bara floating production, storage with Petrobras in Brazil, Statoil
tional oil companies have made three years. of fields starting in 2019. and offloading vessel. has the Seadrill drillship West
significant capital investments in The oil giant is seeking an On top of that, Petrobras is Petrobras also approved the Saturn running a drillstem test in
recent licensing rounds. I believe anchor-moored drilling rig capa- expected to launch a new tender terms for a potential settlement to the Carcara Northwest pre-salt
help restructure Sete Brasil that discovery in Block BM-S-8, to be
PETROBRAS RIG FLEET may lead to the construction and followed by the drilling of the
delivery of four of its 28 rigs, but Guanxuma wildcat in the same
Company Rig Type Dayrate Contract Contract sources suggested there are licence.
Starts Expires numerous uncertainties sur- Meanwhile, Shell hired the Pet-
Ocean Rig Ocean Rig Corcovado Drillship $476,300 May 2012 May 2018 rounding such an agreement. roserv semi-submersible rig Cata-
Ensco Ensco 6001 Semisub $284,000 Jun 2001 Jun 2018 rina to conduct workover cam-
Seadrill West Carina Drillship $481,000 Jun 2015 Jun 2018 More in fray paigns in the Parque das Conchas
QGOG Atlantic Star Semisub $291,100 Oct 2012 Jul 2018 While a revitalised Petrobras is and Bijupira-Salema fields in the
Seadrill Sevan Brasil Semisub $265,000 Jul 2012 Jul 2018 expected to be the main locomo- Campos basin.
Ocyan Norbe VI Semisub $210,000 Jun 2012 Jul 2018 tive that will put Brazil back on Other majors are also taking
QGOG Brava Star Drillship $530,000 Aug 2015 Aug 2018 track for exploration and develop- steps to secure fresh units for
QGOG Amaralina Star Drillship $422,300 Oct 2010 Sep 2018
Transocean Sedco 706 Semisub $279,000 May 2014 Oct 2018
ment drilling, oil majors such as work off Brazil. French oil major
QGOG Laguna Star Drillship $422,300 Nov 2012 Nov 2018
Shell, Chevron, Statoil and Total Total received bids in early April
Petroserv SSV Victoria Semisub n/a Mar 2017 Mar 2019 will also play a key role in the in an effort to charter a high-spec-
Transocean Petrobras 10000 Drillship $460,000 Feb 2011 Aug 2019 coming revival. ification rig to carry out develop-
Ocyan ODN Delba III Semisub $223,000 Aug 2012 Aug 2019 “The fact there is less reliance ment drilling in the Lapa pre-salt
Seadrill West Tellus Drillship $325,000 Apr 2015 Oct 2019 on one company, Petrobras, is field. The one-year contract is due
Ensco Ensco 6002 Semisub $248,000 Jul 2001 Dec 2019 really positive. It is now spread to begin in the fourth quarter of
Diamond Offshore Ocean Courage Semisub $380,000 Mar 2010 Jul 2020 across many more companies, so 2018.
Diamond Offshore Ocean Valor Semisub $289,000 Sep 2011 Sep 2020 I am very optimistic about the Total is also in talks with Ensco
Base Engenharia Vitoria 10000 Drillship n/a Mar 2012 Mar 2021
Ocyan Norbe VIII Drillship $381,000 Aug 2011 Jul 2021
international oil companies to use the drillship Ensco DS-9 for
Ocyan Norbe IX Drillship $358,000 Nov 2011 Oct 2021
bringing more and more rigs to a nine-well wildcatting pro-
Etesco Etesco Takatsugu J Drillship $437,000 Apr 2012 Apr 2022 Brazil,” says another source. gramme in the Foz do Amazonas
Ocyan ODN II Drillship $335,000 Aug 2012 Aug 2022 David Carter Shinn, analyst at basin, but the company is post-
Ocyan ODN I Drillship $335,000 Sep 2012 Sep 2022 rig brokerage Bassoe Offshore, poning the signing of the contract
predicts Petrobras’ rig demand until it secures the final environ-
 20 April 2018
FOCUS DRILLING RIGS 33

More of South America now open for contracts

ers rise
OVER the past few years, general manager of marketing 42, which is located near the as operator, but then had dire
drilling contractors have and contracts Robert Eifler. Stabroek block off Guyana. results on a four-well follow-up
shifted their attention from “We expect additional Kosmos chief executive campaign.
Brazil to other markets in development opportunities to Andy Inglis said recently the In Peru, Tullow recently
South America in search of new emerge both with ExxonMobil company intends to drill up acquired exploration rights for
opportunities, as Petrobras’ and other operators, and there to five wells off Suriname five offshore blocks,
appetite for exploration work is also continued interest from 2019 to 2021 in the event which could lead to drilling
dropped to record low levels, in neighbouring Suriname, of a success with the current next year, and Argentina will
writes Fabio Palmigiani. where additional exploration is programme, potentially testing kick-off in July the first of three
“The ultra-deepwater market planned for 2018.” other play fairways as well. planned deep-water licensing
has changed in the sense that The Ensco drillship Ensco In French Guiana, Upstream rounds.
there is work offshore Guyana, DS-12 recently arrived in has learned that Total is Overall, drilling contractors
Trinidad and Suriname, a lot of Suriname and is soon expected tendering for a rig to drill a well are displaying encouraging
places that did not exist until to begin drilling the Anapai-1 on the Nassau fan in the second signs of optimism with South
five years ago,” Ocean Rig chief wildcat for US independent quarter of 2019. America, saying the region is
executive Pankaj Sharma said in Kosmos Energy in Block 45. The chosen area is to the showing increased demand for
a recent conference call. Anapai-1 is to be immediately west of Tullow Oil’s Zaedyus future rig activity, with current
Guyana, a relatively followed by either the Aurora-1 discovery, where Anglo-Dutch tenders suggesting this should
unexplored frontier until a few or Apetina-1 well in Block supermajor Shell later took over continue to improve.
years ago, was catapulted to the
spotlight after US supermajor
ExxonMobil made the
groundbreaking Liza discovery
in the Stabroek block in May
2015.
Follow-on exploration
work led to a handful of new
discoveries with combined
recoverable resources of 3.2
billion barrels of oil equivalent,
with significant upside.
ExxonMobil has two rigs
operating simultaneously off
Guyana — the Stena drillship
Stena Carron dedicated to
exploration drilling and the
Noble drillship Noble Bob
Douglas, hired for a three-year
period to conduct development
drilling in the area.
“Guyana continues to attract
attention due to its rapidly
growing resource potential,”
said Noble vice president and Guyana gig: the drillship Stena Carron is working for ExxonMobil   Photo: STATOIL

Photo: COBALT INTERNATIONAL ENERGY

mental permit with federal regu-

lator Ibama. Ensco is also the
frontrunner to win another pair
of contracts in Brazil following its
acquisition of Atwood Oceanics.
Upstream understands that
Chevron is poised to sign a con-
tract to secure the drillship Ensco
DS-12 to spud a trio of develop-
ment wells in the Frade field start-
ing in September 2019.
UK independent Premier Oil is
leading a rig-sharing club on
behalf of other operators in the
Ceara basin in the northern equa-
torial margin, and has an option
to charter the drillship Ensco
DS-13 to spud a total of seven firm
wells over a period of 650 days.

Awaiting licence
The company, together with Exx-
onMobil, Chevron and Total, is
also waiting for Ibama to grant
the drilling licence in order to
award the contract to Ensco.
Shell also hinted it may require
a rig in early 2019 to drill at least
one well in the South of Gato do
Mato area it acquired late last year
in Brazil’s second pre-salt round,
while Statoil will likely keep the
West Saturn employed for a little
bit longer to tackle the North of
Carcara area later this year.
“I do not expect the Brazilian
offshore market to return to its
former glory, but there is demand
out there and the country will
continue to be a beacon in the
deep-water market recovery going
forward,” says a source.
34
MIDDLE EAST
Reaping the benefits of mark
Jack-up owners positioning themselves
to cash in on upturn in activity
EOIN O’CINNEIDE
London
T He Middle East market
has long been a happy
hunting ground for jack-
up owners and builders,
with the likes of Saudi Arabia,
United Arab Emirates and Qatar
constantly looking to maintain or
increase production.
Activity in the region remained
relatively high during the oil
industry downturn compared to
other market segments, albeit
with Saudi Aramco and other key
players driving dayrates lower.
With all signs pointing to an
uptick in Persian Gulf activity,
jack-up owners are positioning
themselves for a slice of the
action, with Aramco at the heart
of the scramble for charters.
US owner Rowan Companies
may have stolen a march on its
rivals with the establishment of a
joint venture with the Saudi state
giant, ARO Drilling, to own and
operate rigs off the country, but
large projects in the wider
region  — particularly in Abu
Dhabi — should bring some suc-
cour for those destined to be mar-
ginalised from the Saudi market
FOCUS DRILLING RIGS
once ARO is let fly. “If you are not
ARO Drilling, you’re on the
periphery of the Saudi jack-up
market,” partner and head of data
services at Norwegian analysis
company Bassoe Offshore, David
Carter Shinn, said in a market
report in January.
“Their exclusive relationship
with Saudi Aramco means that
ARO Drilling now owns the
jack-up market in Saudi Arabia.”
Largest market
Data from Bassoe shows that Sau-
di Arabia was by far the largest
jack-up market in the region at the
start of the year, with 45 active
units against 29 in UAE — where a
further 33 were stacked or other-
wise out of service — 17 in Iran, 11
in Qatar and 10 in Egypt.
ARO currently has 12 units
working in the Saudi market, as
against 33 belonging to other drill-
ers.  has committed to building at least
By 2031 this is set to change dra-
matically, with ARO on 32 and the
rest on a combined 13, Bassoe data
shows, assuming Aramco demand
holds at between 45 and 50 jack-
ups on contract at any one time.
However, growth in other mar-
kets such as the UAE and Qatar
should give players other than
ARO room to manoeuvre. 
“The situation isn’t dire yet, but
rig owners will stay busy plan-
ning their Middle Eastern strat-
egy and managing their efforts to
stay in Saudi Arabia with their
efforts to find opportunities else-
where,” Shinn said.
Sharjah-based shipyard Lam-
prell, which is traditionally one of
the largest jack-up builders in the
region but has seen work dry up in
the prolonged industry downturn,
has spied an increase in interest
for new units in the regional mar-
ket.  The Middle East sector is also set
The London-listed company is
one of Aramco’s three current
partners in building a vast mari-
time complex at Ras Al-Khair in
eastern Saudi Arabia, where ARO
20 units over the next decade.
“There are multiple tenders out
now in Saudi Arabia and this year
the jack-up rig count is going to
most likely go up by 20,” says Lam-
prell chief executive Chris
McDonald. “We see that trend
continuing in place for the next
four or five years. We are seeing an
uptick of rig refurbishment, peo-
ple moving rigs into yards for
positioning for future work.”
For the first time in years, cli-
ents are approaching the yard to
talk about orders for jack-ups with
specific applications.  This year has also seen the
“What we are seeing is a tight-
ening of the higher-spec units
globally,” McDonald says, adding
that a significant increase is fore-
cast for the jack-up count in the
Persian Gulf.
Jack-up king
to remain king in the jack-up mar-
ket, McDonald says.
“In the near-term it is going to
be the Middle East. These offshore
fields are shallow-water and their
lifting costs are very low. A large
portion of the infrastructure is
already there, so I think they are
going to continue to drill,” McDon-
ald says. “Aramco spends $3 billion
to $3.5 billion a year maintaining
20 April 2018
their production. We think that
will only increase over time.”
It is not just offshore where an
uptick is seen in the Middle East,
either, with McDonald saying a
number of tenders for land units
are set to be decided at the end of
this year. 
“The big drivers of that are
Saudi, UAE and Kuwait,” he says.
merger of UK rig owner KCA
Deutag with Omani player Dalma
Energy in a $320 million deal. 
The enlarged group has a fleet of
83 onshore rigs operating globally,
but it is the expansion in the Mid-
dle East market that attracted KCA
to the deal, with 46 rigs to operate
in the region, including nine in
Saudi Arabia and 28 in Oman.
According to KCA chief execu-
tive Norrie McKay, “the acquisi-
tion of Dalma’s operations in
Saudi Arabia and Oman will sig-
nificantly strengthen our foothold
in the Middle East, and provide us
with a stronger platform to
develop and grow our business in
what is an exceptionally attrac-
tive region.”
 20 April 2018
FOCUS DRILLING RIGS 35

Maritime complex go-ahead

Jack-up centre: UAE-based
Lamprell has spied an increase in
interest for new units in the
regional market
Photo: LAMPRELL
is huge boost to Saudi Arabia
THE Saudi Arabian rig market
received a massive shot in the arm
in the past year after a quartet of
partners, including state oil giant
Saudi Aramco, took a final invest-
ment decision on a giant new
maritime complex in the east of
the country, writes Eoin O’Cinneide.
The King Salman International
Complex, part of Crown Prince
Mohammed bin Salman’s wider
Vision 2030 plan for rejuvenating
the Saudi economy, is costing $5.2
billion, with construction work
already well under way in Ras
Al-Khair north of Jubail Industrial
City.
Jack-up newbuild orders have
already been committed from
ARO Drilling, a joint venture
between Aramco and US player
Rowan Companies that is set to
dominate the local market for
years to come.
Aramco is joined in the mari-
time complex joint venture by
South Korean shipbuilding behe-
moth Hyundai Heavy Industries,
United Arab Emirates-based yard
Lamprell and Saudi state shipping
company Bahri.
In January 2016, the partners
signed a memorandum of under- Board meeting: Lamprell chief executive Chris McDonald
standing to proceed with due dil- Photo: LAMPRELL
igence on the project, before a
joint development agreement was sive bidding process to get quotes, at least 20 jack-ups over a 10-year
signed that June.  so I think as early as April they period. 
In May last year, they entered will start letting those purchase The new units have already
into a conditional agreement to orders (out),” McDonald says of been tied up with 16-year charters
set up the joint venture, Interna- impending contracts for the likes in Saudi Arabia, with different
tional Maritime Industries (IMI), of cranes, panel lines and high-in- dayrate pricing mechanisms
before sanctioning the project. tegration equipment. applied to the first and last eight
The Saudi government and Ara- The 4.3-square-kilometre facil- years of the deals.
mco are providing $3.5 billion of ity will have four main production “The first two are due to be
the $5.2 billion total, with the zones, with Zone D designated as awarded to the IMI and then sub-
other partners contributing $700 the newbuild jack-up facility and contracted to us by the end of the
million and $1 billion coming by set to be fully completed by April year – the exact timing remains

ket recovery
way of a loan from the Saudi
Investment Development Fund
(SIDF).
“Everything is official, the joint
venture has been formed, we had
our first board meeting,” Lamprell
chief executive Chris McDonald
says, with all key board and exec-
utive positions filled.
The complex is set to open as
early as next year and be fully
operational in 2022, with the first
jack-ups delivered the following
year.
“There has been a very exten-
2020.  unclear,” McDonald said.
The zone will have newbuild
capacity of four rigs and 11 off-
shore platforms per year.
Other zones will be used for the
construction of commercial ves-
sels, up to VLCC size, offshore sup-
port vessels and repair and main-
tenance work. Zone A will have 12
berths and have capacity for
repair and maintenance work on
15 rigs per year, as well as 130 com-
mercial vessels.
The first customer will be ARO,
which has committed to building
IMI and ARO have gone with
GustoMSC’s LJ43 design for the
newbuilds, which will each have
an X-Y cantilever and new blowout
preventer handling system with
enhanced skidding capabilities. 
Engineering, procurement and
construction work on the first rigs
is expected to start in July, IMI
said.
“We already have engineering
on the LJ43, so we have ARO and
IMI in our offices in the UAE,”
McDonald says.

EPCI Solutions & Services

for the Energy Industry
www.rosetti.it
36
FOCUS DRILLING RIGS 20 April 2018

ASIA

Chinese yards bear brunt of o

Just a few years
ago Chinese
facilities aimed to
top the world’s
rig-building table
XU YIHE
Singapore

A SIAN yards continue to

suffer heavily amid
waning charter deals for
offshore drilling activi-
ties, with rig managers signing
off previous deals and yards sus-
pending construction, even as
sporadic orders trickle in.
Chinese yards, which aspired to
top the world’s rig-building list a
few years ago, have borne the
brunt of these setbacks, with pres-
sure to deliver or charter huge
numbers of rigs on backlog.
Construction of a number of
newbuild rigs on the backlog has
been suspended, including a few
jack-up rigs ordered by Seadrill at
Dalian Shipbuilding Industry Off-
shore (DSIC Offshore), Tiger series
drillships ordered by Singapore’s
Opus Offshore, ultra-deepwater
drillships ordered by Seadrill at
Samsung Heavy Industries and
Daewoo Shipbuilding & Marine
Engineering, and a mono-column
platform ordered by Singapore’s
Calm Oceans at China’s Blue
Island.
Sources say Calm Oceans has
held off construction of the first
MCP, CO 101, for three years, but
the contract remains in effect and
the project team is still at the Blue
Island fabrication yard in Nantong
city, in eastern China’s Jiangsu
province.

Platform marketing
Sources add that Calm Oceans has
been trying to market the plat-
form to several clients, including
Australia’s ADX Energy for use at
the Nilde oil redevelopment pro-
ject off Italy.
Calm Oceans has patented the
MCP self-installing and self-re-
movable offshore platform, which
is able to operate in a water depth
of 500 feet. 
The unit, which could be uti-
lised for accommodation, a well-
head platform or a production
platform, was initially scheduled
for completion at the end of 2014
as a bare deck unit.
In the meantime, Singa-
pore-based Alliance Offshore
Drilling (AOD), a unit of China’s
drilling equipment package pro-
vider TSC, has suspended con-
struction of the second and third
jack-up rigs at China’s CSSC
Guangzhou Huangpu Shipbuild-
ing, as the demand for jack-ups
wanes.
The company has yet to find
work for the first unit, Harmoni
Victory, built by the same CSSC
yard and based on Zentech’s
R-550D design, though the rig was
delivered two years ago.  Offshore Innovations Manage-
At the time, AOD said the Har-
moni Victory would be operating
off Indonesia after it concluded a
deal to sell the unit to Indone-
New horizon: a yard in Dalian, China
sia-based Harmoni Drilling Ser-
vices (HDS), which is 90% owned
by Indonesia’s PT Harmoni Drill-
ing Services, with the remaining
10% owned by AOD.  has also seriously hit Shanghai
Sources say that Harmoni Vic-
tory is still warm-stacked at the
CSSC yard in Guangzhou.
However, TSC sees promise in
the well workover market in the
UK North Sea, having just pen-
cilled in a plan to build a rig for
that purpose at Chinese yard
CMIC Raffles in Yantai city of
Shandong province.
The CJ70 rig is to be jointly
financed by TSC and Singapore’s
ment.  OIM is a joint venture
between AOD’s parent TSC and
Offshore CC FZE. Hong Kong-listed
TSC was incorporated as AOD in
2013 in Singapore in order to build
or upgrade drilling rigs for sale or
lease.
The drilling contract drought
Shipyard, which has halted the
construction of the last two of the
four drillships under the Tiger
series.  hydrate in the South China Sea,
The first rig, completed a few
years ago, is now warm-stacked,
while the second has reached
completion short of sea trials.
The original rig owner, Singa-
pore’s Opus Offshore, walked
away from the deal with the
Shanghai yard as the company is
undergoing a liquidation process.  completion. They add that the
Sources say China Oilfield Ser-
vices Ltd may take over as opera-
tor of the Tiger rigs, although this
cannot be independently con-
firmed.  CIMC Raffles is on track
to complete the construction of
the deep-water semi-submersible
drilling rig Bluewhale II in August
this year, despite lack of a charter.  they benefited from higher initial
A sister rig of Bluewhale I,
which completed a one-well cam-
paign last year drilling for gas
the newbuild is a seventh genera-
tion DP3 rig worth $650 million
and is capable of working in water
depths of 3600 metres.
Sources say the second rig, like
Bluewhale I, will be bundled into
the assets of CIMC’s leasing com-
pany, Bluewhale Offshore, upon
company is targeting Brazil and
Angola as potential markets for
the twin rigs.
Unlike Chinese yards, which
rushed to grab new orders five
years ago at low upfront pay-
ments, the yards in Singapore and
South Korea are less squeezed, as
rig construction payments.
Chinese yards are normally
happy with 5% to 10% of the first
tranche payment to finalise a
deal, leaving them to finance the
balance, while yards in Singapore
and South Korea require an
upfront payment of 20%. 
Leverage
In the market downturn, yards in
South Korea and Singapore had
better leveraging power to negoti-
ate deals to sell abandoned rigs at
a discount.
Rig owner Borr Drilling is in
talks with Singapore’s Keppel Off-
 20 April 2018
oil price downturn
shore & Marine about the possible
purchase of six jack-ups for a
reported $960 million on back of a
deal with Singapore’s Sembcorp
Marine to buy nine jack-ups in a
$1.35 billion deal agreed last year.
Sembcorp Marine’s revenue last
year was hit by a 42% drop for con-
struction of floating rigs and drill-
ships as it suffered the termina-
tion of five jack-up newbuild
contracts, as well as a 34% decline
in revenue for offshore platform
work.
However, the yard’s balance
sheet was buoyed by an initial
payment of $500 million in the
fourth quarter from Borr’s pur-
chase of nine rigs.
In March, the financially-trou-
bled rig player Seadrill agreed to
terminate its contracts with Sam-
FOCUS DRILLING RIGS
Photo: REUTERS/SCANPIX
sung and Daewoo. Seadrill ordered
four ultra-deepwater drillships at
a cost of about $600 million each
in July 2013, two from Daewoo
and two from Samsung.  Manufacturers of High Pressure Drilling & Production Hoses
Delivery was originally sched-
uled for the second half of 2015 but
was later deferred as demand for
rigs plummeted.
In March, Norway’s Awilco
Drilling awarded Keppel Fels a
$425 million contract to build a
mid-water semi-submersible
drilling rig for harsh environ-
ment, beating Chinese rivals
CIMC Raffles and Cosco Shipping
Heavy Industry.
Just two weeks ago, Keppel Fels
entered into a contract with
Techfluid U.K. Ltd, Unit 35, Moorland Way, Nelson Park, Cramlington, Northumberland, NE23 1WE England.
MHWirth for delivery of the drill-
ing equipment package for the
Awilco semisub.
Inside US’s plan for
25% Chinese tariffs
THE US’s plans to add another 25%
tariff to 1300 Chinese goods,
worth $50 billion in annual trade
value, will have little impact on
the 88 drilling rigs being stacked
in China without charter, writes
Xu Yihe.
The US Office of US Trade Repre-
sentative’s (USTR) proposed tariff
list, which also includes floating
structures and offshore drilling
rigs, is based on a Section 301
investigation into alleged Chinese
intellectual property and technol-
ogy transfer practices.
The investigation was launched
by US President Donald Trump’s
administration in August 2017.
The additional tariff could
dampen enthusiasm from Chi-
nese yards to take new orders for
offshore production facilities,
including floating production,
storage and offloading vessels
intended for operation in the US
Gulf of Mexico.
However, sources say rig own-
ers and managers could navigate
around the tariff issue for explora-
tion facilities and vessels by estab-
lishing a single purpose vessel
company in offshore tax havens or
by flying a foreign flag.
There is no way for Chinese
yards to evade the additional tariff
for production facilities for the US
Gulf, such as processing platforms
and FPSOs, because these are pur-
pose-built for specific fields.
However, some industry offi-
cials suggest that for FPSOs, oper-
ators normally opt for a
build-lease-operate approach,
which could avoid additional tar-
iffs.
Altogether, 88 new drilling
units — all built for exploration
purposes, not production — are
being docked along Chinese
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37
coastal lines without drilling con-
tracts. 
Of the total, 68 are jack-ups,
eight are semi-submersible drill-
ing rigs, six are drillships and
another six are drilling barges. 
Of the total jack-ups, 21 are of
JU2000E design, 17 are of CJ46
design, six are of Super 116 design,
nine are of CJ50 design and the
rest are of other diverse designs
including the home-grown DJ300. 
Most of the rigs were ordered
during 2013 and 2014 with upfront
payment of less than 10% of the
contract value. 
The lowest first tranche and
only payment of these rigs was 1%
of the contract value, leaving the
yards to finance the rest of the
fabrication with bank loans.
Yards and domestic drilling
contractors have been trying to
market these rigs, offering them
to bid in international drilling
tenders, but in almost in all cases
their offers have been turned
down, as oil and gas companies
want warm rigs with drilling ref-
erences.
Sources say that all the Chinese
yards with drilling rig backlog are
state-owned, making it difficult to
challenge the government rules
and regulations, as their counter-
parts in Singapore can, by devalu-
ing these drilling assets so that
they can start anew without any
financing burdens to pay bank
loans and stacking fees.
It is unrealistic to expect these
rigs will be sold at the contractual
prices when they were ordered a
few years ago, when the oil price
topped $100 per barrel and boosted
dayrates to new highs. Now, with
the price hovering above $60 per
barrel, dayrates are almost halved
as well.
Photo: REUTERS/SCANPIX