Clarksons: Chinese yards taking over jack-up rigs market

As of February, the global jack-up drilling rigs orderbook for 2015 had 67 rigs slated for delivery. Three jack-up rigs have been delivered so far, according to Clarksons, a provider of data and market intelligence for the global shipping and offshore oil and gas industries.

This total is more than has ever been successfully delivered in one year and Chinese yards are leading the charge with 60% of the aggregate. Whilst not all units are going to meet schedule, Chinese builders are still projected to increase their market share, Clarksons has said.

Singapore swing

In the period 2006-13, global jack-up deliveries averaged 19 units per year. These were predominately produced by Singaporean builders who averaged 52% of deliveries p.a. Total deliveries in the period peaked in 2009 at 28 before falling to 14 in 2012.

Singaporean yards bore the brunt of the decline with 18 deliveries in 2008 falling to 5 in 2012. However, there was a significant increase in output in 2013 with 44 deliveries, 28 of which were from Singaporean yards. During this period deliveries from Chinese yards remained limited with an average of 4 p.a.

Hungry Dragon

At this time, Chinese builders entered the jack-up market. Output remained limited but stable, whilst their share of global jack-up deliveries fluctuated annually due to the variation in global deliveries.

Their proportion of total deliveries declined to 18% in 2013 as Singaporean yards increased their output. However, by this point a few yards had developed a track record within the jack-up sector.

The early entrants into the space focused on smaller designs, which accounted for 60% of the units produced by Chinese builders between 2006 and 2013. Since then, Chinese builders have produced greater numbers of large jack-ups. In 2013 and 2014, jack-ups >300ft accounted for 74% of Chinese deliveries in the sector. The increased appetite for larger units has been supported by speculative ordering as owners have been enticed by generous payment terms offered by yards, reported to be as low as 5% up front with the remainder to be paid on delivery.

China Bounding Forward?

Chinese yards have 40 jack-ups scheduled for delivery in 2015, and have delivered one. Currently, on the basis of an analysis of the orderbook, an estimated 27 in total are projected to be delivered this year and a further 25 estimated for 2016.

Clarksons further writes that the delivery track record of these Chinese yards is uncertain with several yards potentially delivering for the first time. Nevertheless, Chinese builders are projected to account for the majority of global jack-up output for the first time in 2015 and will possibly maintain a leading share in 2016.

Speculative ordering and the payment terms offered by yards for jack-ups have aided this strong growth in projected output share; however, they also are its biggest risk. Recent movements in the price of oil may put off speculative owners that had hoped to benefit from oil companies’ expenditure and can cancel contracts with minimal risk due to the payment structure.

So, the orderbook suggests that 2015 is going to be a bumper year for Jack-Ups. Chinese builders are expected to drive the increase in output and are currently projected to deliver the majority of units. However, there are clear risks. It will be a test for Chinese yards who will need to prove they can deliver this majority share.

Source: Clarksons Research