The Offshore Rig Market: A Whole New Ballgame · A whole new ball game What to expect Houston...
Transcript of The Offshore Rig Market: A Whole New Ballgame · A whole new ball game What to expect Houston...
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Presentation
The Offshore Rig Market: A Whole New Ballgame
3 May, 2017
Tom Kellock, Head of Offshore Rig Consulting +1 832 463 3020
7th Annual Houston Offshore Finance Forum
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Agenda
The good news
The bad news
A lesson from the past?
What’s different this time
What to expect
2
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Finally some good news:
Houston Offshore Finance Forum/ May 2017
• Demand for all types of offshore rigs appears to have stopped falling
• Backlogs have stabilized
• New fixture day rates have (?) reached a plateau
• No more rigs are being ordered
• Newbuild deliveries have slowed to a trickle
• At most a handful of the ‘Sete Brasil Rigs’ will be completed
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Looks like an uptick for rigs under contract!
Houston Offshore Finance Forum/ May 2017 Good News
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0
100
200
300
400
500
600
700
800
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017
Rigs under contract (jackups, semis, drillships, tenders)
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…and more importantly for rigs at work
Houston Offshore Finance Forum/ May 2017 Good News
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0
100
200
300
400
500
600
700
800
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017
Working rigs (jackups, semis, drillships, tenders)
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Floater backlog has stabilized
Houston Offshore Finance Forum/ May 2017 Good News
6
0
200
400
600
800
1,000
1,200
1,400
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
On order and under construction rigs are counted
All floating rigs -Contract backlog days per rig
Source: IHS Markit
Co
ntr
act
backlo
g d
ays p
er
rig
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As has jackup backlog
Houston Offshore Finance Forum/ May 2017 Good News
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0
100
200
300
400
500
600
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
RWD <= 300 ft
RWD > 300 ft
Global jackup backlog days - per rig - by rated water depth
Source: IHS Markit © 2017 IHS Markit
Da
ys
of
Ba
ck
log
/ P
er
Rig
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The day rate decline seems to have ended
Houston Offshore Finance Forum/ May 2017 Good News
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$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017
300' IC JUs > 300' IC JUs Midwater Semis Deepwater SemisDeepwater Drillships Ultra-deepwater semis Ultra-deepwater drillships
New Fixture Rates
© 2017 IHS Markit Source: IHS Markit
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But unfortunately there’s also some bad news:
Houston Offshore Finance Forum / May 2017
• The huge over-supply of all rig types persists
• Attrition is not solving the problem (at least not yet)
• Jackup attrition never really got going for IC rigs
• Floater attrition has slowed
• Hard to believe that earned day rates have stopped falling
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Almost half the fleet is uncontracted
Houston Offshore Finance Forum / May 2017 Bad News
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Under Contract, 447
Hot stacked, 38
Warm stacked, 172
Cold stacked, 157
Yard, 19 Other, 23
Current Status of the Global Offshore Rig fleet (jackups, semis, drillships and tenders)
Source: IHS Markit © 2017 IHS Markit
Total of 856 rigs
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Do contractors really expect to put more than 170
(warm-stacked) rigs back to work in the near future?
Houston Offshore Finance Forum/ May 2017 Bad news
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0
50
100
150
200
250
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017
Warm-stacked rigs (jackups, semis, drillships, tenders)
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…while the pile of cold-stacked rigs keeps growing
Houston Offshore Finance Forum / May 2017 Bad News
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0
50
100
150
200
250
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017
Cold-stacked rigs (jackups, semis, drillships, tenders)
© 2017 IHS Markit Source: IHS Markit
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Floater attrition has slowed and for IC jackups it is still
negligible
Houston Offshore Finance Forum / May 2017 Bad News
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0
2
4
6
8
10
12
14
16
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
IC Jackups Floaters
Offshore Rig Attrition
Source: IHS Markit © 2017 IHS Markit
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Average earned rate for deepwater rigs still appears
high, but falling
Houston Offshore Finance Forum / May 2017 Bad News
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$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017
Average Earned Rate - Deepwater Floaters*
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*Rated water depth > 3,000 ft
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For jackups the available data may be misleading….
Houston Offshore Finance Forum / May 2017 Bad News
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$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017
Average Earned Rate - All Competitive Jackups
© 2017 IHS Markit Source: IHS Markit
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How many of these names do you recognize?
Houston Offshore Finance Forum / May 2017 A Lesson from the past?
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0 5 10 15 20 25 30 35 40 45 50
Key Drill
Maersk Contractors
Loffland Brothers
Diamond M
Dixilyn-Field
Atwood
Foramer
Forex Neptune
Marine Drilling
Western Oceanic
Transworld
Zapata Offshore
Rowan
Reading & Bates
Santa Fe
Sonat
Sedco/Sedco Forex
Global Marine
ODECO
Penrod
Contractors managing at least ten rigs in January 1985
Source: IHS Markit © 2017 IHS Markit Number of rigs
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As we don’t have unlimited time…
Houston Offshore Finance Forum / May 2017 A Lesson from the past?
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0 5 10 15 20 25 30 35 40 45 50
Key Drill
Maersk Contractors
Loffland Brothers
Diamond M
Dixilyn-Field
Atwood
Foramer
Forex Neptune
Marine Drilling
Western Oceanic
Transworld
Zapata Offshore
Rowan
Reading & Bates
Santa Fe
Sonat
Sedco/Sedco Forex
Global Marine
ODECO
Penrod
Contractors managing at least ten rigs in January 1985
Source: IHS Markit © 2017 IHS Markit Number of rigs
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Dangerous to think it’s just another industry cycle
Houston Offshore Finance Forum / May 2017 What’s different this time
• Oil and gas are finite commodities
• There’s less out there than before
• Look what has happened to the US Gulf jackup market when oil was at $100
• Imagine the impact of another Macondo
• Or an arctic spill of almost any magnitude
• Is peak demand now just around the corner?
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Operators now have a choice
Houston Offshore Finance Forum / May 2017 What’s different this time
• Shale oil and gas is soaking up operator discretionary investments
• Limited exploration risk
• Predictable costs
• No longer just for the independents
• In the US particularly attractive
• Zero political risk
• Likely decreasing environmental issues under current administration
• And now signs of spreading internationally to a significant degree
• Argentina says $6-8 billion will be invested in Vaca Muerta this year...
• …rising to $20 billion per year from 2020
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But some good news
Houston Offshore Finance Forum / May 2017 What’s different this time
• Most majors are exiting from oil sands
• Falling discovery volumes must eventually cause supply problems
• Offshore fracking could be a game changer
• Costs will probably never be this low again so no better time for
• Commitment wells
• Exciting exploration prospects
• P&A work
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A whole new ball game
Houston Offshore Finance Forum / May 2017 What to expect
• Rig Contracts – “firm” is not an appropriate adjective
• Construction contracts – completion no longer means payment and
delivery but looking for a place to stack the rig
• Forget day rates for now – it’s all about utilization
• New entrants will have an ‘unfair’ advantage
• Expect more local content requirements
• Longer term the outlook for day rates is challenging horrendous for two
reasons
• Far too much competition (do we really need 173 players?)
• Operators can’t/won’t pay more unless oil prices rise
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