Santa Fe touts contrarian rig construction policy

Santa Fe International Corp. Vice-Pres. Richard Hoffman said his company's recent decision to build at least four offshore rigs without contracts is nothing new for Santa Fe (OGJ Online, Feb. 1, 2001). He said the company has built on spec regularly since 1988, and intends to continue.


Santa Fe International Corp. Vice-Pres. Richard Hoffman said his company's recent decision to build at least four offshore rigs without contracts is nothing new (OGJ Online, Feb. 1, 2001).

He said the company has built on spec regularly since 1988 and intends to continue. He said the return on investment for those rigs has been 16%-22%, in part due to lower building costs.

Although Santa Fe can't control day rates or the industry cycle, it can control construction costs by deciding when to build, the company said Thursday at a Credit Suisse First Boston presentation.

Hoffman pointed to studies by Petrodata Ltd. that predict demand for deepwater rigs (capable of operating in more than 5,000 ft of water) will peak at 65 in 2006. The deepwater fleet currently is 46.

"Everyone believes (new rigs) will be built," he said, adding the only questions are when and by whom. The company predicts "severe capacity constraints" before the upturn is over.

Santa Fe said that in many ways it is better to build without a contract. Risk, which keeps many rig companies from building except when a contract is in hand, is relatively low because eventually all rig capacity gets used. Hoffman said even rigs built to contract seldom have contract terms longer than 2 years.

And Hoffman said Santa Fe is in a good position because it has no debt and cash on hand.

The company, which has 57 onshore and offshore rigs, said that timing is critical. Placing an order for a rig near the beginning of an industry uptrend is a gamble that can win a company lower yard costs.

He said building on its own behalf enables a company to build the rig on budget and under its own timetable.

Hoffman said the two jack ups it will build in Singapore will cost $125 million each but can do much the same work as older, more expensive rigs.

He is optimistic about the majors' drilling spending patterns this cycle. He said "the increase is controlled" and thus is likely to remain stable over the next several years.

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