As the market for semisubmersible drilling rigs continues to improve, day rates and utilization levels are increasing, leading the push to build fleet capacity with new rigs and major upgrades.
Drilling contractors have made contracts worth more than $10 billion to build 26 new semisubmersible drilling rigs, up from just 4 under construction 1 year ago. The new floaters include designs from Aker Kvaerner, Houston’s Friede & Goldman Ltd., Frigstad, Global Maritime AS, Sweden’s Gotaverken Arendal AB, Keppel FELS Ltd. deepwater technology group, and Marine Structural Consultants (Table 1).
Almost half of the new rigs are under construction in Singapore, at the Keppel FELS (6) and Jurong (3) shipyards. Others are in progress in China at Yantai Raffles (3) and Dalian (1); in South Korea at Daewoo (3) and Samsung Heavy Industries Co. Ltd. (1); and in Norway, UAE, and Iran.
The managing director and chief operating officer of Keppel Offshore & Marine, Tong Chong Heong, said in mid-May, “Deepwater oil and gas production activities have been increasing and expenditures are predicted to reach $20 billion/year by 2010.”
Renovations
The world’s semisubmersible fleet is aging; the last big building cycle for semisubs was 1982-84 (third generation).1 A few fourth generation rigs were built 1986-96, and some fifth-generation rigs were built beginning in 1997.
Some drilling contractors have methodically upgraded or modified their fleets (OGJ, May 2, 2006, p. 62), but few of the older hulls can be adapted for ultradeepwater and harsh environments. Attrition claimed 3 semisubs in 1989, 11 from 1992-94, and another 6 from 2003-05.1
In addition to the 26 newbuilds under construction, 25 other semisubs were undergoing shipyard modifications, accounting for 15% of the fleet in early June. Another 31 were working under contract, according to Rigzone.
The 25 semisubs being modified or upgraded were spread throughout the world; about half were in the Americas (nine in the Gulf of Mexico, two in Brazil, one in Trinidad); about a quarter in Asia; and about a quarter in Europe, Africa (two in the North Sea, one in the Mediterranean, four in Africa).
Most of the semisub upgrades are for US-based drilling contractors (19/25; 76%).
Transocean Inc. has 10 semisubs being renovated, including adding dynamic-positioning capability to two Sedco 700-series semisubs at Keppel FELS Ltd. in Singapore and Keppel Verolme BV in Rotterdam. Each rig upgrade will cost Transocean about $140 million. The Singapore yard will deliver its rig in May 2007 for a Royal Dutch Shell affiliate contract. The Rotterdam yard will deliver its rig around October 2007.
Noble Drilling Corp. is renovating three semisubs for delivery in 2006-08. Two will carry the new aluminum alloy riser, adding 4,000 ft drilling depth capability.
GlobalSantaFe Corp. and Pride International Inc. are each renovating two semisubs.
Diamond Offshore Drilling Inc. will spend $102 million to upgrade the Ocean Monarch at Keppel FELS in Singapore. The rig is a fifth generation Victory-class semisub that will be ready by fourth-quarter 2008.
Diamond Offshore Drilling Inc. is upgrading the Ocean Endeavor semisub in Singapore to fifth-generation, 8,000-ft water depth capability. DODI’s Les Van Dyke told OGJ that the upgrade will cost $252 million and the rig will be ready in early 2007. The company will also spend $102 million to upgrade the Ocean Monarch at Keppel FELS. That fifth-generation Victory-class semisub will be ready by fourth-quarter 2008.
Utilization, profitability
The active worldwide fleet includes about 140 semisubs, about 8 of which are noncompetitive. In May 2006, utilization of the competitive rigs was about 89%, down from 94% in April, but up from 85% a year earlier. We are up more than 20% from the lowest utilization rate seen in the last 3 years, February-March 2004, when only 67% of the fleet was working under contract.
Current semisub utilization is better than drillships and drilling tenders and slightly behind jack ups and drilling barges.
GlobalSantaFe’s summary of offshore rig economics (SCORE) for April 2006, released on May 15, shows that worldwide profitability for all rigs increased 2% from the previous month. Semisub profitability increased 4.5% from March, up 68.3% from a year prior, and up 238% from 5 years prior.
Of the 54 semisubmersible rigs capable of working in water deeper than 4,000 ft, the average contract rate for the 45 rigs working was about $200,177/day in early June, according to Rigzone.com.
Houston-based Transocean Inc. issued a fleet update on June 1, showing that its semisubs are currently contracted at rates of $53,000-300,000/day. Future contracts for the same rigs are substantially higher, up to $475,000/day (for a contract beginning in August).
Pride has five dynamically positioned semisubs and seven moored semisubs. According to Pride’s June 2, 2006, fleet status report, the rigs are working under contract for about $50,000-200,000/day.
US drilling contractors
Dallas-based ENSCO International has two semisubs under construction at the Keppel FELS yard in Singapore: the ENSCO 8500 and 8501. The ENSCO 8500 design is an upgrade of the ENSCO 7500 design, with DPS2 and eight 2,600-kW thrusters. These new sixth-generation rigs will be capable of drilling to 30,000 ft in water to 8,500 ft deep and will be completed in 2008 and 2009, respectively.
Shipyard costs for the 8500 and 8501 rigs are $312 and $338 million. ENSCO said that both rigs are being built against firm multiyear contracts.
In September 2005, the company announced a 4-year, $385 million contract for the ENSCO 8500 with Anadarko Petroleum Corp., Dominion Resources Inc., and Kerr-McGee Corp., beginning at $264,000/day.
In January 2006, ENSCO announced 3 1/2>-year, $423 million contract with Nexen Petroleum USA Inc., a subsidiary of Nexen Inc. (2 year), and with Noble Energy Inc. (1 1/2 year) for the ENSCO 8501.
In mid-May, GlobalSantaFe Corp. announced a new contract for the construction of a third Development Driller semisub at Keppel FELS; the total cost will be $590 million. The DSS 51 was designed by Marine Structural Consultants and will be capable of drilling to 30,000 ft in water up to 10,000 ft deep. When complete, GlobalSantaFe will have 14 semisubs in its fleet.
In 2002, Noble Drilling purchased two bare Bingo 9000 hulls from Ocean Rig AS for $45 million (Bingo-3 and Bingo-4). The hulls were originally built at the Dalian shipyard in China. Completion of the Bingo-3 hull is under way at Dalian, and the fifth generation floater, Noble Danny Adkins, will be ready for work in 2009.
Who’s building
Following is a rundown of major construction under way by drilling contractors outside the US.
Aker
Aker Drilling AS began operations in Fall 2005 as a new, wholly owned subsidiary of Aker Capital. Aker Drilling has arrangements with Aker Kvaerner ASA to design and build two new Aker H-6e design semisubs. Topsides are under construction at the Aker Kvaerner Stord yard, Norway, and the hulls will be delivered by Dubai Drydocks, UAE.
According to Aker ASA in October 2005, the company placed a fixed-price turnkey order and each rig will cost about NOK 3.8 billion ($627 million).
Aker Drilling’s President and CEO Geir Sjøberg, previously of Transocean, said, “Demand for advanced, efficient drilling rigs is high.” Aker Drilling has options for building two additional rigs for delivery in 2009 and early 2010.
The new rigs will be fully winterized and completed in February and October 2008. They will be able to drill to 30,000 ft in 10,000 ft of water (Table 1). The drilling systems will include double RamRig drilling packages and the ability to control drilling operations remotely.
Despite the large number of new jack ups, semisubmersibles, and drillships on order, the new Aker semisubs are among only a handful of harsh environment rigs under construction; the other newbuilds include the West E-Drill tender, SeaDrill’s Daewoo GVA 7,500 semisub, four semisubs under construction for Maersk Contractors and Frigstad Offshore, and the Seven Deepsea Driller.
Eastern Drilling ASA
Samsung has a turnkey contract to build a new sixth-generation semisubmersible drilling rig, the West E-drill (previously Eastern Drilling 1; OGJ, July 4, 2005, p. 55), for Grimstad, Norway-based Eastern Drilling ASA. Eastern Drilling raised $200 million toward construction costs in its 2005 initial public offering on the Oslo Bors.
Privately held offshore drilling contractor Smedvig ASA is the largest single investor in Eastern Drilling (39.75%). The construction project is being partially financed by the Westport, Conn.-based private equity firm Lime Rock Partners ($50 million).
Eastern Drilling explained the decision to build the $550 million semisub, saying that “demand for the most modern and advanced drilling units is stronger than the demand for older units” because the newer rigs are more efficient and have more flexibility, comfort, and safety.
New sixth-generation semisubs can operate at greater water depths and “may have the capacity to drill deeper wells than older units.” The company said that the turnkey contract with Samsung Heavy Industry reduces uncertainty regarding the final rig price because risk during production is the responsibility of the yard.
The new semisub was designed by Norway’s Moss Maritime AS, a subsidiary of Saipem. In a February 2006 presentation, Eastern Drilling described it as an “enlarged and improved copy of the West Venture.” The Moss CS50 Mk11 design is an enhanced version of the CS45 design. The drilling package, to be delivered by Aker Maritime MH, features dual ram blowout preventers. The semisub will have an advanced dynamic positioning system (DP3) and will be capable of drilling in water depths to 10,000 ft.
Eastern Drilling paid $38.5 million in fourth-quarter 2005 toward the building contract, following previous payments of $89 million, for a total investment to date of more than $127.7 million, according to the company’s quarterly report.
Construction of the rig began in March 2006 and Eastern Drilling CEO Arve Andersson said he expects the West E-drill to be finished in late 2007 and to begin operations for Smedvig in first-quarter 2008.
In July 2005, Det Norske Veritas announced that DNV Maritime was contracted to oversee the total contract and supervise the site and that DNV Technology Services will be responsible for approvals and project management during the first phase of the project. Smedvig is responsible for overall project management.
Frigstad Offshore
Singapore-based Frigstad Offshore Pte. Ltd. has one semisub under construction at South Korea’s Daewoo Shipbuilding and Marine Engineering (DSME), due in 2009, plus options for three more. The building is financed by a $240 million private placement from Frigstad Discoverer Invest Ltd. The Frigstad D90 was designed by Frigstad Engineering Inc. for ultradeep water, to 12,000 ft, and features an HF D90 dual ram and large area of open deck space.
Aker Kvaerner was awarded a NOK 450 million contract to deliver drilling systems and equipment for the Frigstad D90, according to a Mar. 22, 2006, announcement. This includes a dual version of the RamRig.
Maersk
In May 2005, Denmark’s Maersk Contractors ordered two semisubmersibles from Keppel FELS in Singapore. The two rigs have been under construction and scheduled for delivery in 2008 and 2009. The contracts total $473 million for the first two DSS-21, sixth-generation hulls; A.P. Moeller-Maersk will supply the drilling equipment. The rigs can accommodate 180 people and drill in waters to 3,000 m.
Maersk recently exercised its option for a third hull of the same design, under a contract for $262 million. The rig is due for delivery in first-quarter 2010.
Keppel FELS is also building four jack up rigs for Maersk at this time.
Offshore Rig Services
Stavanger-based Offshore Rig Services ASA has two sixth-generation semisubs under construction at the Yantai Raffles yard in China and two remaining options for additional rigs. The ORS Pioneer will be delivered in second-quarter 2008.
OFRS announced in early April that it was exercising its first option, and the second semisub, yet to be named, will be delivered in fourth-quarter 2008. Both are Stavanger-based Global Maritime AS’s GM-4000 design.
The ORS Pioneer is the first semisubmersible rig that the Yantai Raffles yard has built. In November 2005, Wartsila announced a €15 million contract from Yantai Raffles to supply the main engines, thrusters, and associated ancillary equipment for the new semisub. The six Wartsila 32 diesel engines will have a combined power of 29 Mw. Consortium partners Siemens AS and Kongsberg Maritime AS will provide additional rig systems under a contract worth about €15 million.
The ORS Pioneer will include a Hernis 400 compact closed-circuit television system on the main drilling deck, from Hernis Scan Systems AS, the company announced in February 2006.
Yantai Raffles will provide the hull and marine systems for the second semisub, and National Oilwell Varco, Norway, has a contract for the drilling systems.
In December 2005, Awilco Offshore ASA acquired additional shares in OFRS and became the largest single shareholder, with about 38% of the company.
Larsen, PetroMena
Norway’s PetroMena AS, managed by Larsen Oil & Gas AS (LOG), has two sixth-generation semisubs under construction in Singapore, to be delivered in 2009 and 2011. Both are Friede & Goldman ExD design.
LOG signed a contract for construction of one rig and an option on another under a $398 million turnkey EPC contract with Jurong Shipyard. The total project cost will be about $462 million. LOG paid 30% up front, with another 20% due about 13 months before delivery and the remaining 50% due on delivery.
Petrolia Drilling ASA has been increasing its ownership share of PetroMena; as of April 2006 it controlled about 37% of the shares. On May 10, Petrolia Drilling’s board of directors issued first-quarter results, noting that they expected a favorable rig market over the next few years and that the market for offshore services “will continue to be strong.”
SeaDrill
In 2005, SeaDrill ordered the first of four semisubs currently under construction, an ultradeepwater harsh environment GVA 7500-N semisub from Daewoo Shipbuilding & Marine Engineering Co. in South Korea. According to R.S. Platou Offshore, the turnkey contract of $496.5 million includes 7,500 ft of riser and a 15,000 psi blowout preventer.1
The first rig will be delivered in February 2008. SeaDrill had three options for additional rigs at Jurong Shipyard and two will be delivered 2008 and 2009, for $486.5 million each.
John Fredriksen-controlled SeaDrill Ltd. bought Mosvold Drilling Ltd. in March-April 2006.
New drillship
Another drillship construction project was recently announced, in addition to the five drillships discussed in last month’s Drilling Market Focus (OGJ, May 8, 2006, p. 43). Norway’s Ferncliff Drilling AS has a $550 million turnkey contract with South Korea’s Samsung Heavy Industries Co. Ltd. for construction of the world’s largest drillship, to be delivered in 2009.
The ship will be 222 m long, displace 97,000 tons, and be capable of working in 11,000 m water depth, with zero-discharge drilling and mud systems.
In late May, National Oilwell Varco announced that its Norwegian subsidiary, National Oilwell Norway AS, has a $200 million contract with Samsung to provide a drilling package for the ship.
The new drillships will compete with semisubs for deepwater projects. The newbuilds, scheduled to be delivered in 2006-11, will add about 16% capacity to the existing fleet. Additional deepwater capability is expected from the upgraded floaters.
Reference
1. “Offshore Rig Market Status Report,” R.S. Platou Offshore, September 2005, www.platou.com.