The Norwegians have always seemed to have had an innate instinct as to when the green shoots of a recovery from a downturn point their little heads through the darkness. It would appear that history is repeating itself with the recent news reports concerning Norwegian contractors Awilco Drilling and Borr Drilling.
Awilco have taken the drilling industry and indeed the shipyards by surprise and given rise to a wave of optimism by placing an order for the construction of a new harsh environment mid water semi-submersible, the first order for a new offshore rig since August 2015. The lucky recipient of this $435m contract is Singapore’s KeppelFELS, still reeling from the downturn and their involvement in the Brazilian “carwash” scandal. The Awilco order, for a Moss Maritime CS-60 ECO design unit comes in the same week as Sete Brazil and Petrobras finally settled their disputes leading to the likely continuation of the construction of two (2) UDW semi-subs for Keppel and two (2) drillships for Jurong shipyard. Some compensation at least for Keppel although another four (4) semis they had under construction for Sete have now been cancelled.
Awilco have noted the increased activity levels in the North Sea harsh environment sector and noted the rise in rates and have been quick to order a new modern rig to take advantage of this upswing as well as to replace their aging existing rigs. Semis WilPhoenix and WilHunter were both built in the early 1980’s and will find it increasingly hard to compete against the modern and highly efficient harsh environment rigs that have been built over the last few years. There are three (3) brand new HE rigs sitting in China awaiting acceptance at present. In addition, Awilco have options to build three (3) more Moss Maritime rigs to be exercised 12 months, 24 months and 36 months from March 2018. Note too that Transocean have recently said they are on the lookout to acquire one or more harsh environment assets
Meanwhile the rise of fellow Norwegian contractor Borr Drilling continues its upward surge. The new start-up company, with origins in Seadrill, began by acquiring Transocean’s jackup fleet, a total of fifteen (15) units, five (5) of which were still under construction. They followed this up by acquiring nine (9) more stranded jackups from PPL Shipyard in Singapore and then in January were reported to be in discussions with KeppelFELS to acquire around six (6) of their stranded assets. The latter deal has not yet moved forward, at least publicly, and is likely still in the negotiation phase. Not content with this, Borr have now made an offer to acquire Paragon Offshore, the somewhat ill-fated offshoot of Noble Drilling. The latter had carved out all its aging assets into the new company which was destined to have little chance of surviving a downturn. Indeed, Paragon duly went into Chapter 11 Bankruptcy, emerging in 2017, and has since then been divesting itself of many of its idle and aged units, either sold for scrap or sold for conversions to MOPU’s. At time of writing they have managed to rid themselves of thirty (30) of their “legacy” units (nice term for very old) all built between in the late 1970’s or early 1980’s.
What have Borr acquired for their $232.5m? Asset wise Paragon has a current fleet of twenty-two jackups and one floater. Of these eight jackups are cold stacked and veritable candidates for scrapping as they have all been idle for quite a while and were all delivered between 1972 and 1984. Paragon currently also have another eight jackups currently warm stacked with another three due to join them at completion of their current contracts during 2018. All but one were built between 1979 and 1984 and really should also be candidates for the scrap yard. The solitary exception is the 2014 built Prospector 5, a F&G JU2000E premium unit acquired from Hercules together with a sister rig, the 2012 built Prospector 1, back in November 2014.
Seven units are currently contracted including the lone floater and the North Sea spec Prospector 1 and another jackup will start a new charter in the coming months. However, three (3) of these will be off charter before the end of this year. Paragon have a current backlog of $204m which is unlikely to be the most attractive and significant aspect of an acquisition by Borr. What Borr is after, similar to their antecedent Seadrill, is a stable and experienced management structure and organisation, a solid management system and at least two quality assets. This is the same model as followed by Seadrill when they first started and acquired an organisation and experience by buying Smedvig. Another advantage for Borr is that they also acquire Paragon’s experience and track record which will assist them to qualify for tenders where often operators’ are unwilling to give new start-up company a chance, preferring a company with experience and a track record. Paragon currently have operations in the North Sea, Middle East and South Asia and have previously worked in Mexico, the Gulf of Mexico, South East Asia and West Africa.
Another potential advantage for Borr is that they might be able to substitute some of their idle new builds for a contracted Paragon unit though this will be limited by the paucity of Paragon’s contract portfolio. Vantage used this trick last year in acquiring a Hercules jackup while the latter were in Chapter 11 and substituting their modern jackup Sapphire Driller mid-way into a 5 year charter. Borr have twelve (12) idle uncontracted units at present and another nine (9)to be delivered this year and in 2019. They are in sore need on contracts.
Meanwhile Borr have issued a rallying cry to its competitors and are taking up the high ground in the fight to reduce the jackup rig fleet where almost 50% of the world’s assets are over 30 years old. They have been encouraging “responsible owners” to rationalize their fleet and consolidate the fragmented market. The company’s strategy is to focus on operating modern high spec assets and they will only consider putting Paragon’s aging fleet back to work if there is no high reactivation costs involved and they are also cognizant of complying with modern safety standards and drilling efficiency. If they are to practice what they preach and Walk the Talk then we can expect the entire Paragon fleet except for the two JU 2000’s to be scrapped or sold for other non-drilling. Borr is currently doing this for four (4) not so old F&G L780 Mod V jackups acquired from Transocean which Borr have labeled as non-core.