Bassoe: Welcome to the real world, where offshore drilling rig values are an enigma
Available assets, lack of capital, and sluggish fundamental market improvement are keeping rig values under pressure.
By: David Carter Shinn, Bassoe Offshore
Due to several factors including lack of liquidity (transaction activity), less willingness by investors and banks to finance rig acquisitions, expectations of a prolonged low-dayrate environment, and additional distressed or available supply in the market, offshore rig values have decreased across all segments in Bassoe Analytics.
It should be noted that the sale and purchase market is not functioning well at the moment. Volatile gaps in bid/ask spreads make valuations difficult to predict and unstable, and could prevent certain transactions from clearing apart from cases where assets are distressed or where the buyer has a committed drilling contract.
As such, values have been reduced to reflect potential downside risk even if many sellers may continue to wait to sell assets at higher levels if they’re able to.
Ultra deepwater values hit hardest
Non-harsh ultra-deepwater floating rig asset values have decreased by 20% on average. This significant repricing comes after recent cancellations of newbuild contracts by Transocean and Northern Drilling’s cancellation of their purchase agreement for the West Cobalt which was acquired earlier this year at $325 million (plus $25 million for a second BOP). As a result of these cancellations, there are three additional ultra-deepwater drillships available, and these assets are less likely to be sold until values rise or will be sold at levels lower than where they were in late 2018 and early 2019.
Jackup values under pressure from distressed assets
Apart from ultra-premium harsh environment rigs (CJ70 and N Class), jackup values have decreased by 3–10% depending on age, specification, and design. While the fundamentals in the jackup market are outperforming deepwater, downside pressure to values remains. And with the availability of a number of distressed assets including those being sold by creditors of Oro Negro, Aban Offshore, and Dynamic Drilling, as well as a newbuild rigs still at shipyards in China and Singapore, market clearing levels for jackups are unlikely to gain significant momentum in the near-term.
Harsh environment semisubs performing well, but affected by investor malaise
Harsh environment semisub values have decreased by 3–5% to reflect the general deterioration in the capital market. Values for this segment remain at or slightly above previous transaction levels due to high utilization and expected upside in dayrates, but acquisitions at a premium to current values are not likely to occur.
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