Overcapacity Spreading to Offshore Drilling Market?

Scarabeo 5
Scarabeo 5

Overcapacity in the shipping segment may be expanding to other market sectors as well, as oil majors start cancelling charter contracts for rigs.

Namely, on Friday Statoil decided to suspend the contract with Saipem for the rig Scarabeo5 from the autumn of 2014, provisionally for the remainder of the year, attributing the decision to “overcapacity in its rig portfolio”.

This means that Scarabeo5 will be laid up for a brief period.

According to Tore Aarreberg, head of rig procurement, Statoil is planning to re-commission the rig after the turn of the year.

The period for which the rig is being taken out of operation is equivalent to less than 3 % of Statoil’s drilling capacity on the Norwegian continental shelf (NCS) this year.

The rig is on contract until 2017 and will be used for the drilling and completion of production wells on various NCS fields, thus boosting recovery from existing fields.

“Taking Scarabeo5 out of commission for a brief period will not affect Statoil’s production targets or planned exploration activities on the NCS,” the company said in a release.

Earlier this year, one of the world’s largest offshore drilling contractors, Transocean, resorted to revising prices for its fleet of older and less sophisticated rigs from around $53 to about $45, amid fears that an oversupply of drilling rigs may affect its rig rental business.

One may deem the two cases unrelated, but over the past few years owners have been busy ordering new rigs, while on the other hand, pressure for new discoveries rises.

The OSV market has had a similar fate with flattening of charter rates.

Will the drilling market experience a similar scenario of overcapacity driving prices down, remains yet to be seen.

World Maritime News Staff, July 6, 2014; Image: Saipem