Borr Drilling paints rosy picture on hi-spec jack-up market outlook

Jack-up drilling rig operator Borr Drilling is optimistic about what the future – or the present even – holds for its modern drilling rigs as the global jack-up rig fleet utilization continues improving.

The company currently owns a fleet of 22 premium (delivered in 2001 and after) jack-up rigs, four standard jack-up rigs (built before 2001) and one semi-submersible. It also has 4 contracts for the delivery of eight rigs from yards before the fourth quarter of 2020.

“When all newbuild rigs have been delivered, the fleet will consist of 34 rigs, whereof 30 are premium, of which 28 built after 2010.”

Borr, which has 16 rigs on contracts or committed to future contracts, has said that during the first quarter of 2019, global jack-up drilling rig fleet utilization has continued its upward trend.

Borr said that global competitive jack-up rig utilization stood at 79% at the end of March 2019, an increase of one percentage point quarter-on-quarter, and at 81% today.

“Similar to the trend noted during all recent quarters, the improvement in competitive jack-up utilization has been driven by increasing utilization of modern jack-up rigs (built after the year 2000) which was at 83% at the end of March 2019, an increase of two percentage points quarter-on-quarter and a further two percentage points increase to 85% [ today].”

According to Borr, in the standard jack-up segment, competitive utilization has remained flat quarter-on-quarter despite additional reductions to the competitive fleet due to retirements and cold stacking.

Borr itself has since the start of 2018 sold or retired 30 older jack-ups.

High-demand, longer deals for modern units

“In some regions, such as the North Sea, Middle East, and West Africa, competitive utilization for modern units is well above 90%, which continues to drive pricing higher, as experienced by Borr in recent fixtures,” Borr said.

Borr has also cited data from IHS, according to which the number of new mutual jack-up rig years contracted in the first quarter 2019 was approximately 70, which represents an increase of over 150% compared to the same period in the previous year.

“It is noteworthy as well that the average duration of the contracts awarded in the first quarter 2019 was of 1.2 years, almost double the figures from the same period last year which stood at 0.7 years,” Borr said.

“We believe this reflects an increasing level of confidence of our customers in their shallow water portfolio and a higher sense of urgency in securing rig time as available supply reduces, particularly for modern units,” Borr said.”

The jack-up market bottomed out in 2017 at 298 units contracted. The increase in the activity is illustrated by the fact that as of today there are 347 units currently contracted, and this number is expected to increase to 370-380 units by the end of the year, with further activity increases forecasted for 2020 according to a reputable broker, Borr added.

“The contracted number of jack-up rigs at the peak in 2014 was more than 440 units. Currently, there are only approximately 41 uncontracted jack-ups built in 2001 or after, out of which the Company estimates less than 25 are being actively marketed and owned by drilling contractors capable of competing in international markets,” Borr said.

“For rigs built in 2010 or after, availability is even tighter with a total of 29 rigs available, out of which the Company estimates less than 15 are being actively marketed and owned by drilling contractors capable of competing in international markets, eight of these units are owned by Borr,” Borr said.

Following recent tenders, the international drilling operators are now at, or very close to full utilization, meaning the competitive situation is greatly improved, Borr added.

Following recent tenders, the international drilling operators are now at, or very close to full utilization, meaning the competitive situation is greatly improved, Borr added.

“It is interesting to note that several of the recent contract awards have been awarded to players which currently do not have available rig capacity. This means the contractors either have to target a rapidly reducing number of rigs stranded at shipyards in China or try to source rigs in the open market.

Borr Drilling has been approached by several such contractors. During the first quarter of 2019, seven units were retired from the worldwide jack-up rig fleet, the company said.

Older rigs have it tough

While the utilization is soaring for the modern jack-up, Borr notes a reverse trend in the standard jack-up rig segment, where the contracted rig count has nearly halved since 2014 to current levels of 113.

Borr has said it maintains its view that a significant number of the approximate 70 jack-up rigs that are older than 30 years and uncontracted will remain uncompetitive and unlikely to return to the active fleet in the near future, or at all.

More jack-ups in M. East today than in 2014

For modern rigs, contracted rig count stands at 234 representing an increase of approximately 41 rigs since 2014.

“It is a very interesting observation that the jack-up activity in the big oil producers like Saudi-Arabia, UAE, China, and Qatar today is significantly higher than when oil prices were above $100/bbl in 2014. Based on current tender activity, it is expected that this growth will continue,” Borr said.

Borr has also said that the areas where jack-up rig activity is down, namely Mexico and South East Asia, a significant impact on oil production has been observed. Mexican oil production is down from 2.5m bbl/day to 1.6m bbl/day.

“To counter this decline, jack-up rig activity has recently been dramatically increased in both areas,” Borr said.

“Eighteen months ago, Borr had no rigs in operations, negative cash-flow and limited operational track record. Today, the Company has 16 rigs operating or commencing operation shortly, mainly with major oil companies and NOCs. The Company has been established as one of the world’s leading operator of modern, high-specification jack-ups, with a strong operational track record,” Borr said.

“The Company expects to generate positive operating cash-flow in the third quarter 2019 and has now received commitments for a solid long-term financing. The Board remains committed to the comments given in the fourth quarter 2018 report, that a major part of our open capacity should be contracted before the end of 2019.”

The company on Wednesday posted a net loss of $56.4 million for the quarter. The loss deepened compared to the first quarter of 2018 when the loss was $33.8 million, however, the 1Q 2019 was an improvement over a loss of $110 million in the fourth quarter of 2018.

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