Jack-Up Rig Costs Plummet As Offshore Drilling Appetite Dries Up
A collapse in demand for offshore drilling services and new capacity coming into the market have resulted in jack-up rigs being stacked and day rates plummeting in recent months. This trend is reflected by developments in Egypt’s offshore drilling sector, which has experienced a surge in activity over the last three years that now appears to be weakening. According to Baker Hughes, the number of offshore rigs operating in Egypt, which alongside Qatar is the second largest user of offshore rigs in the Middle East after Saudi Arabia, has fallen from 16 in September last year to just seven in April (see table).
“The rates have dropped dramatically,” says Ian Anderson, Business Development Manager at Maritime Industrial Services. “A lot of rigs are stacked up now, waiting to be used. It’s all hinged on the price of oil.” Mr Anderson said that the day rates for jack-up rigs had dropped from around $180,000 a year ago, to $100,000-110,000 now, with some going for even less, depending on the specifications of the rig and the length of the contract. “Other companies are taking off equipment and going out as accommodation units for half of what they were getting for drilling a year ago,” he added.
Evidence of the drop in Egyptian rig demand and the sharp decline in day rates was recently provided by two of the world’s largest drilling contractors. Two jack-up rigs belonging to Houston-based Transocean have been stacked in Egypt since March, and a third contract is likely to be terminated following a dispute between the company and one of its clients in Egypt Petzed.
Meanwhile, another US contractor, Atwood Oceanic, was due to deliver its new ultra premium jack-up rig Atwood Aurora to German firm RWE Dea in mid-February, for drilling in the Egyptian Mediterranean. But due to weather-related delays, the rig was only delivered on 21 April, which has forced Atwood to lower its originally specified day rate of $165,000 to $133,000. The contract with RWE is for an initial period of two years. But some companies with shorter contracts are opting to terminate contracts early by paying off the balance in a lump sum.
This is the case with the operator of the East Zeit concession in the Red Sea. The contract for the Interocean III jack-up rig, belonging to Transocean, was due to expire in June, but the rig is now being stacked off the coast of Ras Gharib, Transocean said in its fleet update on 5 May. Meanwhile Petrobel, a joint venture between Italy’s Eni and the Egyptian General Petroleum Company (EGPC) that operates in the Gulf of Suez, has terminated a contract with Transocean for the jack-up rig GSF Key Singapore. Transocean says it is challenging the validity of the termination, but the rig has been stacked offshore Alexandria for an undetermined period.
“The jack-up market has been much weaker than the deepwater market, and it appears [to be] weakening at an accelerating pace,” said Transocean’s CEO Bob Long, at a conference call to discuss the company’s first quarter earnings on 6 May. The company said jack-up markets would remain under pressure for the near term particularly in southeast Asia, the Middle East and West Africa, where the lack of demand and access to capital, together with the supply of newbuild rigs is expected to be most pronounced.
Middle East Offshore Rig Count
Egypt | Qatar | Saudi Arabia | Middle East | |
September | 16 | 10 | 14 | 43 |
October | 12 | 9 | 12 | 35 |
November | 10 | 11 | 12 | 36 |
December | 11 | 9 | 10 | 33 |
January | 12 | 8 | 11 | 35 |
February | 8 | 8 | 12 | 31 |
March | 5 | 8 | 12 | 30 |
April | 7 | 7 | 12 | 30 |
Source:Baker Hughes’ International Rig Count.
Copyright MEES 2009.
