With suspension of 12 more jack-ups, rig pool in Middle East narrows down

Three more offshore drilling players – ADES Holding Company, COSL, and Arabian Drilling – have joined the club of rig owners that have confirmed a temporary suspension of operations for one or more jack-ups in their fleets, which are working in the Middle East. While not all firms have revealed their clients’ identities, all rigs are rumored to be working for Aramco, thus, the Saudi energy giant’s string of suspensions is believed to have been issued for 18 rigs so far.

A suspension of operations of up to 12 months has been arranged for five of ADES’ 33 offshore jack-ups operating in Saudi Arabia. One of these suspended rigs is expected to be deployed to a recently awarded campaign in Thailand, which is scheduled to start in the second half of 2024. The drilling player explains that another of these rigs is poised for an ”imminent” opportunity in the region.

Dr. Mohamed Farouk, CEO of ADES Holding, commented: “We remain in active and healthy discussions with our major client in Saudi Arabia following the latest developments in the Saudi market as we continue to demonstrate agility with a client-centric approach – aligning with our client’s strategic needs and objectives – and while preserving the remaining backlog of the temporary suspended contracts.”

These temporary suspensions for five rigs are due to become effective seven days from the signing date of the mutually agreed suspension notice, or when the work currently in progress is completed and the drilling unit is released, whichever is later. ADES underlines that the suspension mechanism offers enough flexibility for the suspended rigs to complete the firm and optional terms of new deployments before resuming work in Saudi Arabia post-suspension.

In addition, the original term of the suspended contracts will automatically be extended for a period equal to the suspension for each rig. While the new contract award in Thailand and the second imminent award in the region come at higher daily rates, compared to ADES’ current offshore average daily rates, the company will continue to market the remaining rigs globally.

Farouk further noted: “Concurrently, with the very high utilization rates of our offshore fleet over the past few years, new capacities made available will provide ADES with further flexibility when expanding its footprint in existing and attractive new markets. This will allow us to further capitalize on the current tight market conditions with significantly high utilization and elevated daily rates and build on our recent award in Thailand and the other potential one in the region while strengthening profitability.

“Overall, management remains confident in the Group’s growth prospects on account of its strong global platform, with a leading presence across nine of the most attractive drilling markets and a highly marketable and demanded fleet of jack-up rigs, providing ADES with significant optionality and competitiveness that underpins a multi-year growth cycle in the industry.”

Another drilling player, COSL, has also got a sudden notice from an undisclosed customer in the Middle East to suspend the operation of four drilling rigs. As a result, the firm is negotiating with this customer about the specific time for suspension, follow-up arrangement, and corresponding solution. During the suspension period, the offshore drilling player will proactively seek new market opportunities.

While COSL highlights that the suspension will have a certain impact on the original business expectation in the Middle East, the specific impact is still under further evaluation. The company’s board is convinced there is no material impact on the overall business and its financial position, even though the rig suspension will pose a short-term challenge to the firm’s development in the Middle East. With this in mind, COSL remains optimistic about the overall development of the overseas operation.

Meanwhile, Arabian Drilling is in talks with Aramco regarding contract suspensions of around 12 months for three offshore rigs. The company’s elaborates that the impacted rigs and the timing of the suspensions are yet to be confirmed. Three other offshore drilling players also disclosed rig suspensions in the Middle East.

In line with this, Borr Drilling received a notice of temporary suspension of operations from Aramco for one of its jack-up rigs in Saudi Arabia. The Saudi oil and gas heavyweight also sent such a notice of suspension to Valaris for one of the firm’s 19 contracted rigs. It is believed that the suspension of operations, which Shelf Drilling got for four jack-up rigs in the Middle East, also came from the Saudi energy heavyweight.

After Saudi Arabia took steps to maintain its maximum sustainable capacity (MSC) at 12 million barrels per day (MMBD), Aramco was told not to continue with its plans to raise MSC to 13 MMBD. Therefore, it is believed that all recent rig suspensions in the Middle East stem from this. More such rig suspensions may also be on the cards.

Westwood pointed out a few months ago that the number of rig reactivations and newbuild deliveries decreased by 64% in 2023 in comparison to 2022, which is mostly due to national oil companies (NOCs) in the Middle East sating their near-term jack-up appetites after a contracting feast as part of a bid to ramp up domestic supply and production.

The energy market research and consultancy player outlined that if any new rig orders were placed those would be for jack-ups, which had their share of multi-year contract awards recently, with some in the Middle East as long as 15 years.