Gulf of Mexico rig market responds to hurricanes

April 10, 2006
Hurricanes Katrina and Rita battered people and structures in the Gulf of Mexico and along the Gulf Coast, leaving many large-scale renovation projects and rising rig rates in their wakes.

Hurricanes Katrina and Rita battered people and structures in the Gulf of Mexico and along the Gulf Coast, leaving many large-scale renovation projects and rising rig rates in their wakes.

Many rigs were damaged, not surprising, given that design guidelines for offshore platforms set by the American Petroleum Institute require that a structure only need withstand a “100-year storm,” equivalent to a Category 2 or 3 hurricane, with sustained winds at 110 mph.

API guidelines also require that a platform be able to withstand waves up to about 70 ft high. But waves during the last few big hurricanes reached well beyond this height. The Naval Research Lab recorded a 91-ft wave more than 100 miles from the eye of Ivan last year, and researchers estimate that waves closer to the eye were more like 131 ft high.1

Despite negative effects on the rig fleet from multiple hurricanes in the Gulf of Mexico this season, including facility evacuations, rig damage and destruction, and demand pulling rigs elsewhere, analysts see day rates increasing and projects moving forward.

High oil and natural gas prices allow oil and gas companies to “fairly easily absorb” higher prices for oil services and rigs, said Simmons & Co. analysts.2 Project economics remain attractive despite day rates that have more than doubled.

The continued escalation of rig rates keeps the market above the threshold levels necessary to justify continued new build construction, and the jack up drilling fleet in the Gulf of Mexico is effectively fully utilized.

Simmons oil service equity analysts said that service companies would suffer short-term negative effects from drilling and production delays following Hurricane Rita. They also noted that offshore construction (Cal Dive International Inc.; Global Industries Offshore LLC) and boat companies (Tidewater Inc.; Hornbeck Offshore Services Inc.) would benefit from the additional work in to clean up and rebuild the gulf’s infrastructure.

They said contract drillers were “somewhat insulated” from the weather delays due to provisions in standby day-rate contracts but would suffer from the expense of repairs and lost revenue during shipyard time.2

For instance, Lehman Bros.’s analysts say that TODCO derives 85-90% of its operating income from the US Gulf of Mexico, including 70% from 19 US-based jack ups and 20% from 27 US-based drilling barges.3 It has a heavy exposure to fluctuations in the gulf’s rig market.

Rowan Cos. Inc. reported an $8.9 million loss after insurance, 58 lost rig operating days, and about $4 million in lost drilling revenues in the third-quarter, due to the hurricanes.

Lehman analyst Angeline Sedita said that they expected aggressive bidding on Gulf of Mexico rig contracts following the hurricanes, but roll over rates were already reaching 60% higher than current contract rates in mid-October.4

On Oct. 31, about 62% of the US Gulf of Mexico rig fleet was under contract (186 of 298 rigs), according to Rigzone. About 68% of the rigs off Mexico (46 of 68 rigs) were under contract. In the Caribbean, 86% (6 of 7 rigs) were drilling, all off Trinidad. Off Venezuela, both of PDVSA’s jack ups were working, operated by Pride International, but PDVSA’s two drilling tenders were ready-stacked.

A look back

Hurricane Ivan, a Category 4 storm that hit the Gulf of Mexico in the middle of the summer in 2004, destroyed seven platforms and damaged 24 others, according to the US Minerals Management Service, although more than 150 platforms were in Ivan’s path.5

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And a recent Wood Mackenzie study about Gulf of Mexico hurricane damage, issued Oct. 3, stated that Katrina damaged 18 rigs and Rita 15, compared with only 7 rigs damaged during Hurricane Ivan in 2004 (OGJ, Oct. 10, 2005, p. 32). Tables 1 and 2 summarize rig damage from Katrina and Rita.

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Gulf of Mexico

In a preliminary assessment report issued in early October, US Department of Interior Secretary Gale Norton said about 2,900 platforms were in the path of Hurricanes Katrina and Rita. She said that Katrina destroyed 46 platforms and 4 drilling rigs in late August and damaged another 20 platforms and 9 rigs. She also said that Rita destroyed 63 platforms and 1 drilling rig in late September, and damaged 30 platforms and 10 drilling rigs.

Of the 109 destroyed, Norton characterized 108 as low-producing, “end-of-life” platforms, all built before 1988, although Chevron’s Typhoon tension-leg production platform was new.

Norton said that damage from Katrina and Rita seems to have come mostly from mobile offshore drilling units (MODUs) dragging their anchors while drifting, after being ripped from their moorings by the storms.

The MMS scheduled a meeting between industry representatives and regulators for Nov. 17 to discuss the problem of drifting MODUs, 19 of which were uprooted during Hurricanes Katrina and Rita. No MODUs were disturbed by Hurricane Wilma.

In September, according to Lehman Bros. analysts, 92 jack ups were operating, 6 were in shipyards, and 11 were cold-stacked.

Now, 7 jack ups have been declared total losses following Katrina (2) and Rita (5). Another 6 jack ups are being moved out of the gulf by Rowan Cos. (4), ENSCO (1), and TODCO (1). Both weather and economics are causing the Gulf of Mexico rig fleet to continue to decrease in size.

Rowan’s Charles Wharton told OGJ in early October that the company kept 300 workers on payroll despite having five rigs mangled and the Letourneau Sabine Pass yard temporarily inaccessible. The Vicksburg, Miss. yard, in the midst of construction for Mexico’s Perforadora Central, was not damaged by Hurricane Rita.

More recently, the MMS reported that 16 rigs and 211 platforms had been evacuated in the Gulf of Mexico as of Oct. 21, prior to Hurricane Wilma’s move through the gulf. Drilling contractor Transocean Inc. evacuated 315 workers from 10 rigs and ships.

Prior to the evacuations, there were 121 jack ups in the Gulf of Mexico, including 67 drilling, 2 on workovers, 3 waiting on location, 18 undergoing modification, 9 under construction, 5 under inspection, 1 en route, and 15 cold-stacked.


Drilling in the Caribbean is limited to Cuba and Trinidad. Southcentral Cuba was hit by Hurricane Dennis, a Category 4 storm, on July 8, 2005, followed by Hurricane Charley on Aug. 12, and Hurricane Wilma on Oct. 23. There has been no information available about the effect of the hurricanes on rigs operating in Cuba.

Damage to drilling facilities outside of the Gulf of Mexico was minimal this year. Although seven MODUs are off Trinidad, none was damaged. Trinidad and Tobago have never suffered a direct hit from a major hurricane in recent history, but Hurricane Ivan was close in 2004, as was Hurricane Emily in July 2005. The islands experienced earthquakes, though, in October 2000 and December 2004.


Most of Mexico’s offshore rig activity is focused on the Bay of Campeche, an area that has escaped storm damage in 2004-05. The Yucatan Peninsula, much further south, absorbed the shock of Hurricanes Stan and Wilma this year.

All 28 jack ups were working off Mexico at the end of October (24 drilling, 4 workovers). Of the 25 platform rigs, 7 were drilling, 2 were busy with workovers, and the remaining 16 were ready-stacked.

The Neptune Discoverer drillship was stacked. Eight of 10 semisubmersibles were working, with 1 (the Mata Redonda) in shipyard for modifications, and another semisub ready stacked. Only 1 of the 4 inland barges was drilling, according to Rigzone.

Wiring, cables

Among the many components that are needed to repair, upgrade, or replace drilling rigs are power, control, and instrument cables. Typically, wire and cable products account for 1-1.5% of the cost of a newbuild offshore rig, according to Michael O’Brien, director of marketing at Houston-based Draka Marine Oil & Gas International, a division of Draka Cableteq, part of Netherlands-based Draka Holdings NV. Draka had worldwide revenues of $2.1 billion in 2004.

Draka MOG is the largest single worldwide supplier of cable and wireline products to the offshore oil and gas industry, with about 23% global market share in 2004.6 With more than 30 years in the oil and gas business, the company now offers more than a hundred different cable products.

A new offshore rig may contain 30-50 different types of cable. Draka MOG provides cable for jack ups (three currently under construction at the PPL Shipyard, Singapore); semisubmersibles (NIOC’s Khazar at the SADRA yard in Iran); and drilling platforms (ExxonMobil Canada’s South Venture and Alma platforms at Sable).

Large FPSOs require even more cable types; Draka MOG recently supplied 153 km of cable for Husky Energy’s SeaRose FPSO, off Newfoundland.

Bob Springs, president of Draka MOG, told OGJ that the offshore damage caused by Hurricanes Katrina and Rita was unprecedented and more extensive than the damage caused by Hurricane Ivan in 2004. In fourth-quarter 2004, he said the company’s revenues increased 10-15% from cable repairs after weather-related damage.

The company expanded its Houston distribution center twice since it was opened in early 2002. It stockpiles cable for immediate repair work, but the lead time for project-based manufacturing is 12-16 weeks, depending on the factory involved. The price of finished cable for offshore use varies from less than $1/ft for instrument cables to more than $100/ft for power cables.

Springs expects damage assessments in the Gulf of Mexico to be complete by the end of the year, and although he cannot “forecast the impact” on his business, he expects an increased demand for cable throughout 2006. He said rig assessments are delayed by the short supply of helicopters and supply boats, and the greatest immediate need is for temporary power cables to complete the evaluations.

Power cables can be more complex than control and instrument cables, as they may need to be halogen-free and resistant to potentially corrosive muds, saltwater, and solvents used offshore (Fig. 1).

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Copper is a primary component in all cable products, and Springs noted that competition from the building industry has driven the price of copper to $3,900/tonne on Oct. 21, from $3,250/tonne on June 28, a 20% increase in only 4 months. Spot market prices are even higher, he said.

Draka MOG buys copper from three US suppliers, and two of the company’s 11 manufacturing facilities are in the US (Pennsylvania, Massachusetts). These two plants supply about 35% of the cable used by Draka MOG for the offshore industry, and most of that is directed to maintenance and repair work on rigs in the US.

GlobalSantaFe Corp. and Transocean Inc. are among Draka MOG’s regular customers.

Storm lashing for jack ups

In mid-October, Houston-based Zentech Inc. announced that it has developed a storm lashing system for jack up drilling rigs that it claims will improve storm survivability, enhance deepwater capability, and extend the service life of shallow water jack ups.

The new system, patented earlier this year, uses radially spaced mooring lines to connect the jack up hull or legs to suction pile or vertical load anchors at 20° to 40° angles and uses a static tensioning mechanism to keep the lines taut (Fig. 2).

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The system can be installed after a jack up is on location.

Additional benefits are: longer fatigue life, increased variable deck load, low dynamics, and reduced preload requirements.

People, recovery

Labor constraints are becoming increasingly acute, particularly as many established offshore workers lost their homes on the Gulf Coast and supporting communities were wiped out. Skilled workers will eventually return, along with perhaps new workers lured by the strong market outlook.

Damaged infrastructure (roads; supply boat fleets, docks, and piers; and helicopters and terminals) will continue to add to delays in mobilization in the short-term.

Land Rig Newsletter Editor Richard J. Mason points out that in the short term, disruptions in the energy supply caused by Hurricanes Katrina and Rita “will place additional emphasis on the land sector to meet shortfalls in gas production,” stimulating demand for land drilling services.7

There’s always an upside.


1. Finch, B., and Raines, B., “Designs of offshore platforms at issue,” Houston Chronicle, Sept. 25, 2005, p. D1.

2. Simmons & Co. Equity Monthly, Aug. 31, 2005, 86 pp.

3. Lehman Bros. equity research report, TODCO, Oct. 4, 2005.

4. Lehman Bros. equity research report, Contract Drilling, Oct. 18, 2005.

5. MMS news release No.3223, Feb. 2, 2005,

6. Based on an internal update by Draka Marine Oil & Gas to the 1999 CRU report.

7. The Land Rig Newsletter, Sept. 28, 2005, p.8.