Still a Rocky Road Ahead for Drilling Contractors … · While average floater backlog is flat...

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Presentation

Still a Rocky Road Ahead for Drilling Contractors

2 May 2018

Tom Kellock, Head of Offshore Rig Consulting, +1 832 463 3020, [email protected]

8th Annual Houston Offshore Finance Forum

mailto:[email protected]


Houston Offshore Finance Forum / May 2018

2

Agenda

Before we start…

For activity we’re still in a holding pattern

Good news / bad news

Ongoing issues

Still a Rocky Road Ahead for Drilling Contractors


Some things you should know

Houston Offshore Finance Forum / May 2018Before we start

3

• Rig Utilization – what figure would you like?

• Beware of Backlog

• We need your help


If you don’t know what definition of “Utilization” is being used you don’t

know anything

Houston Offshore Finance Forum / May 2018Some things you should know

4

0

10

20

30

40

50

60

70

80

90

100

New (2005+) IC jackups Mat Jackups Harsh environment semis Sixth gen (2005+) drillships

Contracted/Marketed Contracted/Total Under Contract/Marketed Under Contract/Total Working/Marketed Working/Total

Utilization - April 2018

© 2018 IHS MarkitSource: IHS Markit

Uti

lizati

on

(%)


Backlog is just not what it used to be


5

While everyone makes a big deal about their backlog:

“$12.8 Billion in Backlog”

“Backlog Strength and Contract Coverage - $2.6 Billion of Backlog Contracted “

“$2.8 billion of contract revenue backlog”

”Backlog at December 31, 2017: $3.0 Billion”

“As of March 31, 2018, our contract backlog was approximately $2.4 billion.”

And until recently it was a useful indication of cash generation

Today it means nothing without further analysis


Help needed


6

It would be very helpful to have more information on

• Operating costs

• Day rates

Not for publication but to enable us to perform the analysis we need so we can show you what’s going on


No real change in the number of working rigs in almost two years

Houston Offshore Finance Forum / May 2018Still in a holding pattern

7

0

100

200

300

400

500

600

700

Jan2014

Mar2014

May2014

Jul2014

Sep2014

Nov2014

Jan2015

Mar2015

May2015

Jul2015

Sep2015

Nov2015

Jan2016

Mar2016

May2016

Jul2016

Sep2016

Nov2016

Jan2017

Mar2017

May2017

Jul2017

Sep2017

Nov2017

Jan2018

Mar2018

Jackups Drillships Semisubmersibles

Working Rigs

Source: IHS Markit © 2018 IHS Markit


While average floater backlog is flat – except for mid-water


8

0

200

400

600

800

1,000

1,200

1,400

Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18

Ultradeepwater rigs

All Floating Rigs

Deepwater Rigs

Midwater Rigs

Midwater rigs rated ≤ 3,000 ft

Deepwater rigs rated 3,001 to 7.500 ft

Ultradeepwater rigs rated > 7,500 ft

On order and under construction rigs are counted

Out of service rigs are not counted

Contract backlog days per floating rig by rated depth category

Source: IHS Markit

Co

ntr

act

backlo

g d

ays p

er

rig

© 2018 IHS Markit


While jackup average backlogs have also stabilized


9

0

100

200

300

400

500

600

Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

RWD <= 300 ft

RWD > 300 ft

Global IL jackup backlog days - per rig*

Source: IHS Markit

* Out-of-service jackups are not counted© 2018 IHS Markit

Days o

f B

acklo

g / P

er

Rig


These trends are both positive and negative for the offshore drilling industry

Houston Offshore Finance Forum / May 2018Good news / Bad News

10

• Higher oil prices

• Efficiency gains

• Successful restructurings




11

• Higher oil prices

• Essential to allow operators to pay a sensible price for offshore rigs

• Improve the economics of offshore projects

BUT - they also improve the economics for onshore including unconventionals




12

• Efficiency gains

• Improve the economics of offshore developments

• Allow operators to pay higher day rates

• But may reduce the number of rigs needed longer term

From Odfjell Drilling’s 2017 Annual report

“The initial plan was that Deepsea Atlantic should drill 6 production wells and 7 injection wells in the next 36 months. Now, 21 months after spudding the first well, the unit has delivered 8 production wells and 9 injection wells in addition to 6 appraisal wells. A total of 23 wells in just over 21 months”




13

• Successful restructurings

• Obviously good for the companies concerned

• Not all bad for the investors and lenders

BUT any reduction in the number of players would have been a good thing for the industry


There are several inter-related issues that need to be addressed for a return

to health

Houston Offshore Finance Forum / May 2018Ongoing Issues

14

• Still far too many rigs

• Still far too many companies

• From a macro (and external) viewpoint this is an astonishingly inefficient industry


The older rigs are not disappearing as quickly as many expected

Houston Offshore Finance Forum / May 2018Ongoing issues

15

30+ years old, 148, 33.4%

Less than 30 years old

295, 66.6%

Rigs under contract - 30 April 2018

Source: IHS Markit © 2018 IHS


And the industry is spending a lot of money to maintain the rest of the fleet


16

Stacked Rigs - April 30, 2018

Number of rigs Estimated Stacking Cost Stacking Cost Total

($000/rig/day) ($mil/fleet/day) (Smil/day)

Rig Type Cold Warm Hot Total Cold Warm Hot Cold Warm Hot

Jackup 80 91 31 202 1 7 25 0.1 0.6 0.8 1.5

Semi 35 20 6 61 3 35 80 0.1 0.7 0.5 1.3

Drillship 22 22 9 53 5 50 100 0.1 1.1 0.9 2.1

Total 137 133 46 316 0.3 2.4 2.2 4.9


A top heavy industry in terms of management at the bottom end…

Houston Offshore Finance Forum / May 2018Ongoing Issues

17

…where we have have 100 separate organizations managing 310 rigs

That’s probably a lot of under-utilized executives if every company has

1 CEO

7 Senior Vice Presidents

5 Vice Presidents

And these are the least likely companies to retire any rigs


How many man-hours are being wasted due to the degree of competition?


18

“Around 40 units offered to Ophir Thailand's jackup enquiry”

THAILAND: Oct 26. Ophir Energy has received an overwhelming

response to a expression of interest (EOI) request for a jackup

programme, with around 40 units proposed.”


In an era of “carbon footprint awareness” this should be embarrassing for

the industry


19

On August 1st, 2017 IHS Markit published two news items about modern ultradeepwater drillships:

Bolette Dolphin heading for Tenerife

COTE D'IVOIRE/CANARY ISLANDS: Further to an IHS Markit Petrodata report from 25 July,

drillship Bolette Dolphin is currently demobilising from Cote d'Ivoire to Tenerife, Canary Islands.

ENSCO DS-7 heading to Cote d'Ivoire

CANARY ISLANDS/COTE D'IVOIRE: Drillship ENSCO DS-7 has begun mobilisation from Tenerife,

Canary Islands, to Cote d'Ivoire ahead of a one-well appraisal programme with Total.

Fortunately they passed each other off Senegal on August 4th without incident.


In summary


20

Further consolidation is desperately needed if the offshore drilling industry is to return to profitability

Finding niche markets could be the salvation of some companies

Let’s hope that the amateurs stay out of this market in the future

IHS Markit Customer Care

[email protected]

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Asia and the Pacific Rim: +604 291 3600

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Still a Rocky Road Ahead for Drilling Contractors … · While average floater backlog is flat...

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