Interview: Dive into the well of offshore drilling wisdom

Return to page 1

Another interesting thing is China. Apart from what CNOOC disseminates in its quarterly reports, you rarely hear about offshore drilling in China, however, Bassoe Analytics shows some mind-boggling numbers for China. I’ll list them here: Count of rigs: 120; Drilling; 38; Warm/hot stacked 13, Cold stacked 2, Under Construction 67. Can you please break it down for us?

China is a special market, dominated by COSL and a few other major Chinese rig owners.  Many rigs in China work on rolling (well-to-well or periodically-renewed) contracts.  As such, you don’t hear much about new fixtures and contracting activity.  But there’s a lot going on there, and the country will continue to be an important driver for rig demand.

One thing that’s interesting about China is that although there are no non-Chinese rig owners drilling in China today, major Chinese rig owners (like COSL) also deploy their rigs abroad.  Chinese rigs have worked or currently are working in West Africa, Southeast Asia, and the North Sea.

For jackups under construction, China dominates.  Of the 67 rigs yet to be delivered in China, 59 are jackups (out of a pool of 81 newbuild jackups worldwide).  China’s strategy to offer highly attractive terms on newbuild rigs five years ago may have left them in a tough spot right now, but it’s also allowed them to build up a massive amount of experience.

What about Singapore and South Korea, the traditional rig building powerhouses. How do they fare compared to China?

Rig building activity won’t be a major source of income (compared to before) for most shipyards over the next few years.  Apart from perhaps a few more harsh environment semisubs or other specialized drilling rigs, shipyards will be looking to secure other types of offshore construction projects, specifically production-focused assets like FPSOs and FPUs.

So far, as I mentioned in an earlier article, Singapore and China seem to be benefitting most from this.  Sembcorp, for example, was recently awarded the Johan Castberg (Equinor) and Vito (Shell) projects, and Keppel FELS secured Awilco’s newbuild harsh environment semisub.  In China, COOEC will build Shell’s Penguins FPSO, and it looks like BP’s Tortue FPSO will also be awarded to a Chinese yard.

Recently, South Korea hasn’t had as much success competing for these projects due to higher costs, while Singapore has become more competitive and China has strengthened its reputation among international oil companies.

Can you share some other data that we haven’t touched, but you feel is worth talking about?

I’d like to point out that transaction activity in the rig market has shot up since 2014.  This indicates that the market is moving in the right direction.  In 2017, 55 rigs left the fleet for scrapping or conversion.  This year, 35 rigs have left and many more are on their way.

At the same time, sale and purchase transactions for drilling operations have hit their highest level in four years last year, with more sales than during the last three years combined.  This was mainly due to Borr Drilling, but other owners like Ensco, Transocean, Shelf Drilling, and Northern Drilling have also contributed to a more active transaction environment.

Usually, fleet optimization and a greater willingness among owners to invest in 2nd hand rigs signal a trend of strengthening fundamentals and rising asset values.  And we think there’s more excitement coming on the transaction side this year.

You can access Bassoe Analytics here.