IS THE 2018 JACKUP MARKET IN ASIA ANY BETTER THAN LAST YEAR?

Although we are only five months into the new year, a picture is already emerging of what we can expect of the jackup market this year when you compare statistics for 2017 and those to date for 2018.

Year 2017 began with a fleet strength of fifty-one (51) jackups plying their trade in the region. Of these only twenty (20) were working which gave us a utilization rate of just 39%. During the year we had forty-six (46) contract awards, mostly short term. By year end the fleet had diminished to forty-nine (49) units but we now had thirty (30) working with a utilization rate up to 61%. Definitely an improvement from the dark days of 2016 but 61% is hardly a utilization rate to get really excited about when you still had nineteen (19) jackups still idle. Contractors reported that they were busy fielding enquiries but not very busy finalizing contracts.

Now to this year. To date in 2018, that is to end May, there have been thirteen (13) new fixtures and we currently still have a fleet strength of forty-nine (49) of which twenty-two (22) are idle, a 55% utilization rate. Eleven (11) new tenders have been issued, roughly comparable with the same period last year.

So, on the face of it, and considering what is in prospect for the rest of this year, we are basically looking at more of the same rather than any major improvement in the market.

But that is not the full picture. What has happened this year is desperation measures. Most awards have tended to go to rigs that have come off or are coming off contract, that is “hot rigs”, which does not help those stacked since 2015 and 2016, and rates have slumped from around $50-60,000 for foreign owned units last year to the latest fixture this year, $43,50, as some contractors try to win at any cost. Such rates are surely below operating costs. “Keep the rigs working whatever the cost” now seems to be the mantra.

Of course, there are other factors peculiar and specific to this region, the main one being indigenization. The main jackup markets in the region are Malaysia, Indonesia and Vietnam all of whom have domestic drilling companies. Thailand, Myanmar and Australia are more fringe players. The jackup contractors in the region can be divided into domestic drillers (UMW, Perisai, Apexindo, KS Drilling and PV Drilling), regional drillers (COSL, Japan Drilling and Aban) and the foreigners (Ensco, Noble, Borr, Maersk, Vantage, Shelf and Seadrill). Over 50% of contract awards made in 2017 went to domestic drillers. Petronas in Malaysia carried out a policy of Malaysian first, Indonesia introduced its Indonesian flag requirement, and in Vietnam PetroVietnam only approved contract awards to PV Drilling. While the rest were bleeding the domestic drillers kept working and in the case of Malaysia, at preferential rates.

Another interesting pattern emerged from the 2017 fixtures. If an award did not go to a domestic driller it frequently went to a regional one. COSL and Aban were the main beneficiaries, with COSL virtually guaranteed to win in Indonesia where several operators have Chinese partners and Aban by simply bidding far below the current market rate. Out of twenty-two (22) awards to non-domestic drillers, half went to regional drillers, indicating a preference for fellow Asians who are considered easier to deal with and generally more accommodating.

To judge by the flow of jackups departing the region this year for greener pastures, the foreign drillers may have finally accepted that their prospects in this region have been minimized by indigenization and by a preference for regional contractors. The only markets in the region where these factors do not apply are Thailand and Australia, neither of which are major jackup plays. Just three (3) rigs left the region in 2017 but in the first five months of this year eight (8) premium units have already departed and another is lined up to depart in Q3. Ensco, Seadrill, Vantage, Japan Drilling and even COSL and Aban have mobilized units out this year although the latter two have not exactly helped by promptly replacing them with rigs incoming from other regions.

Unfortunately, the mass departures have had no effect on the demand supply equation. This is down to Borr Drilling. The Norwegian driller has taken delivery of five new build jackups from PPL and KeppelFELS shipyards in Singapore with another five (5) to be delivered during the year. They are all stacked in Singapore and technically form part of the region’s supply, playing havoc with the utilization rate and in the process balancing out the departures.

In summary it is difficult to convince yourself that this year is going to be any better than 2017. Only nine (9) of the contract awards made in 2017 and 2018 to date have been for programs lasting one year of more. 84% of the awards have been short term, the clear majority being of less than six months duration. Thus, most contracted rigs come back on the market all too frequently lessening the chances of any long time idle units picking up new charters. No wonder they are moving them out.

And this market is not going to benefit from any mass scrapping of so called “legacy” units. There are only four (4) old jackups left, the rest of the fleet are all premium units built between 2007 and 2018.

The region therefore needs to lessen the supply side while waiting for the demand side to increase. This is highly unlikely to happen this year which translates into a No, the region’s jackup market this year is not going to be any better than 2017.

Roll on 2019.

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ASIA PACIFIC QUARTERLY REVIEW OF OFFSHORE ACTIVITY FOR Q1 2018.

NEW AWARDS AND TENDERS

A drop in jackup utilization rates from 63% at the end of December last year to just 48% at the end of this quarter is mirrored by the Floater sector which also dropped from 28% to 22%. This would suggest the market is worsening but in fact there are promising green shoots of recovery.  But don’t hold your breath, a full recovery is not exactly imminent.

New fixtures during the quarter were same old same old, numbering the same as in Q4 last year; twelve (12) in total, with five (5) for jackups and seven (7) for floaters. Four (4) of these new charters were long term, firm periods of 18-24 months which is promising. Of the floater charters three (3) were ultra-deepwater, three (3) for tender rigs/swamp barges and one (1) for a mid-water floater. Indonesia was the busiest with four (4) new contracts awarded and two (2) for Australia.

Fresh market surveys during the quarter amounted to sixteen (16), a little better than last quarter. Several of these were converted to tenders within the three-month period. Nine (9) surveys were for jackups and five (5) for mid water floaters, a regional market sector having a serious shortage of supply to this will be an interesting sector to watch.

The good news however is that there was a significant leap in the number of new tenders issued, sixteen (16) in all. Seven (7) of these were for work in Indonesia although two (2) of these were re-tenders. Nine (9) were for jackups, four (4) for mid water floaters, an UDW requirement and two (2) for TAD’s/swamp barges.

So, at the end of the quarter there are fifteen (15) jackup tenders currently awaiting award and thirteen (13) for floaters still under evaluation.

ARRIVALS AND DEPARTURES

A busy quarter for departures. Six (6) jackups and one (1) UDW floater mobilized out of the region for pastures new. We have seen the back of West Telesto, Topaz Driller, COSLSeeker, Deep Driller 8, Hakuryu 10, Jindal Explorer and UDW floater Dhirubhai Deepwater KG2. The high number of jackups leaving is reflective of the poor prospects for international jackup contractors in what is a grossly over supplied region likely to worsen with progressive deliveries of new build units into the sector throughout the year.

There have been two new arrivals, Transocean’s GSF Development Driller 1 into Australia from cold stack in the Canary Islands and COSL’s Nanhai IX from China to take up a charter in Indonesia.

RIG CONSTRUCTION

Following a full year with nary a new build rig delivered to its owner, all of whom shied away from committing to accept a new asset when the final payments would have been due, the turn of the year has seen five (5) new jackups delivered already, three (3) for Borr Drilling, one (1) for Japan Drilling, all of which are stacked in Singapore and one for Northern Offshore which has remained in China.

Meanwhile five contracts for UDW drillships have been cancelled. One for an Ocean Rig drillship, the Amorgas and four that were ordered by Seadrill, West Aquila, Libra, Dorado and Draco. This means that Samsung and Daewoo are each now the “proud” owners of three (3) UDW drillships for which they must seek new buyers. There are still eighteen (18) drillships in various stages of completion yet to be delivered.

More positively the quarter did see an order for a new build floater. AWILCO placing an order with KeppelFELS for a harsh environment semi with options for three more. This is the first order for a new build of any kind since August 2015.

Both Singapore yards, Keppel and Jurong. did have a little to cheer about when Sete Brasil finally settled with Petrobras and decided to continue with the construction of just four new UDW units and terminate the contracts for the other twenty-four originally contracted. The four (4) were two (2) each for the Singapore yards both of whom had originally received orders for six units.

One stranded harsh environment semi, Stena MidMax, cancelled by Stena last year, has been sold by Samsung shipyard to AkerBP. The market expects more acquisitions of stranded UDW units and harsh environment semis over the coming months.

IDLE RIGS & NEW STARTS

Warm stacked jackups in the region currently outnumber those working, twenty-five (25) to twenty-four (24). There are also another eight (8) cold stacked. The situation with the region’s floater fleet is even more dire with only five (5) units currently working out of a fleet of twenty-two (22). And there is a further twelve (12) that are cold stacked.

This is reflective of the fact that there were just nine (9) contract start-ups during the quarter whereas seventeen (17) rigs completed their contracts in the same period and either became idle or started new charters. However, five (5) jackups and five (5) floaters of the region’s idle fleet do have charters to start over the coming months.

COLD STACKING AND SCRAPPING

Four venerable floaters left the region to head to a scrapyard, Songa Venus, Songa Mercur, Doo Sung and Ensco 5005. One UDW floater, Discoverer Luanda, was cold stacked as soon as its charter expired in in January. One of the three remaining mid water floaters in the region, and easily the oldest of them all, Stena Clyde, has been reactivated for a short contract in Australia.

Talking of reactivations, the recently reactivation of Transocean’s GSF Development Driller 1, which has just arrived in the region, has triggered talk of planning for further reactivations from Diamond and Ocean Rig, noticeably for moored units. There is a dearth of moored mid water units world-wide.

OTHER REGIONAL NEWS

The long running dispute between East Timor and Australia over their maritime boundary in the Timor Sea has finally been settled with the boundary re-drawn. As a consequence, the Greater Sunrise Gas project, which has ended up in Timorese waters, is now back on and operator Woodside is now progressing this long-delayed project.

Meanwhile the Philippines has indicated it will allow exploration in its Reed Bank acreage in the disputed waters of the South China Sea and is forming a joint venture with CNOOC of China to undertake this, tantamount to asking the devil into your front parlour. Reed Bank is well within the Philippines Exclusive Economic Zone.

And another negative instance of China’s pervasive influence in the disputed South China Sea has been felt by several contractors and sub-contractors as well as Spanish operator Repsol when China leant heavily on Vietnam to shut down the planned $2bn development of the Ca Rong Do oil and gas field which is also well within Vietnam’s Exclusive Economic Zone. Repsol has been forced to claim force majeure on many contracts it had already committed too, with the main losers being Ensco, Yinson/PTSC, Heerema, Keppel FloaTec and Drill-Quip.

A major change in New Zealand has seen Shell complete its threatened withdrawal from the country after being around for close to 100 years. Austrian outfit OMV, already with a strong presence in New Zealand, have acquired all of Shell’s upstream assets in the country. The deal has also seen Malaysian Sapura Energy farm into five (5) permits in the Taranaki Basin that OMV acquired from Shell.

Woodside has considerably strengthened their Australian portfolio by acquiring ExxonMobil’s stake in the giant Scarborough gas field off Western Australia. They have assumed operatorship and have offered partner BHP Billiton a greater share in the venture.

Malaysia has a new national operator aside from Petronas. The state of Sarawak has announced the formation of its own state petroleum company Petros. In future it will handle all new exploration and developments within the state although Petronas will retain control of all existing production and developments.

MERGERS AND ACQUISITION

Borr Drilling have been at it again. After creating some excitement in January when it was revealed they were in discussion with KeppelFELS to buy some of their stranded jackups, they then announced they are to purchase Paragon Offshore, the Noble offshoot, who have a large fleet of “legacy” jackups, mostly cold or warm stacked which they have been busy scrapping as part of the reorganization following their entry into Chapter 11. Borr have already announced they are likely to scrap most of these jackups, retaining the two former Prospector premium jackups. The main thrust of the acquisition would appear to be to acquiring the experience of an established drilling contractor, its operational track record and safety systems.

Meanwhile Transocean completed its purchase of Songa Offshore and already indicated it will likely scrap Songa’s three (3) “legacy” semis that are currently cold stacked in Norway.

THE REGIONS OFFSHORE RIG FLEET

At the end of the quarter the Asia Pacific’s marketed and active offshore fleet consisted of eighty-eight (88) rigs, forty-nine jackups, four (4) mid water floaters four (4) deepwater floaters, fourteen (14) ultra-deepwater floaters and seventeen (17) tender assist units.

 

THE NORWEGIANS ARE AT IT AGAIN !

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.

THE NEW YEARS SALES HAVE BEGUN…

The news revealed by Singapore’s Business Times, and later confirmed by Keppel, that Norway’s Borr Drilling are negotiating with the shipyard to pick up six (6) of Keppel’s eleven (11) stranded jackups is just the latest in a series of efforts by Singaporean and Chinese shipyards to divest themselves of their surplus jackups after failing to persuade the original owners to take delivery.

Borr were known to have been in discussions with Keppel last September and October before they decided instead to seal a deal with rival Sembcorp Marine to pick up nine (9) BMC Pacific Class 400 jackups for a total price of $1.3bn from PPL shipyard who thus rid themselves of their surplus inventory in one fell swoop. Originally priced at between $208-$214m each (PPL are likely to have received a 20% down payment at time of order,) this, at $144m each, is still a decent discount for Borr. It was said at the time that Keppel had been unwilling to match the discount offered by PPL.

The new Borr/Keppel deal, of six (6) rigs for $960m, if consummated, suggests a price of $160m per rig but this could be misleading as Keppel has three different designs under construction all priced differently. Sources in Singapore have indicated that the six (6) are four B Class units, (one of Grupo R’s, one of Fecon’s, the Clearwater unit and Keppel’s speculative rig) plus the TS Topaz which is a Super B Class and the TS Jasper, a $500m N Plus Class North Sea spec jackup. The total contractually agreed price with the original owners for these six (6) rigs was $1.575bn. If it is true that $160m is being agreed and true that it includes the six (6) rigs I have listed above then it is a bargain.

And there has been some movement in China to divest themselves of their stranded jackups. China Merchants have either thirteen (13) or seventeen (17) jackups under construction depending on which source you believe, two ordered by related company China Merchants Capital, six (6) by Singapore’s Bestford, a company linked to Labroy’s founder Tan Boy Tee, two by Hongmao Shipping/Hai Heng Ship Engineering out of Tiajin, all of which are GustoMSC CJ-46 units plus three (3) GustoMSC CJ-50 units, two ordered by Hai Heng and one by Vanda Offshore believed to also be Tiajin based and yet another speculator who jumped on the bandwagon. CMHI has managed to offload the two China Merchants Capital units to Singapore’s I-Ships Management on a bare-boat agreement with an option to purchase and the two are already operational, working in Iran. The agreement also has provision for I-Ships to acquire a further four CJ-46 units, likely those of Bestford, though this has not yet transpired. CMHI also reached an agreement with Singapore’s Energy Drilling for the tender assist specialist company to market another CJ-46 jackup, Bestford 5, with an option to operate the rig if E-Drill were to win a contract. With no jackup experience this is a big ask on the part of E-Drill.

CIMC Raffles however are following a different path. After taking over the two Frigstad 7th generation UDW semis, renamed Bluewhale 1 and Bluewhale 2, the yard formed a drilling company, Bluewhale Offshore, to operate the rigs and set up an office in Singapore. Subsequently they have added five surplus jackups and three undelivered harsh environment semis to Bluewhale’s marketing fleet. Three of the jackups are F&G JU2000E design units, Cerebus and Phoenix, originally ordered by Central Shipping Monaco who terminated their construction contract in May last year, and the Coastal Driller 4002 ordered by Malaysian marine contractor Coastal Contracts with this rig in limbo due to ongoing arbitration proceedings between the two companies over the first jackup built for Coastal at the yard. The other three jackups are of the minimalist F&G Super M2 design, two of which were speculative by the shipyard and which failed to find buyers, with the other being the Caspian Driller currently bare-boated to Momentum and working in Turkmenistan. To date Bluewhale Offshore have been unsuccessful in finding work for any of their fleet.  

The other two Chinese yards with the highest exposure are Shanghai Waigaoqiao (SWS) and Dalian Shipbuilding (DSIC) with ten (10) and nine (9) jackups respectively left on their shelves. In SWS’s case three units are destined for Northern Offshore, a bona fide drilling contractor who will accept delivery of all three eventually. SWS have now offloaded the remaining seven (7) rigs and transferred ownership to Tianjin China Shipping Jianxin Offshore Engineering, a financial leasing company established by SWS parent CSSC. The rigs are three ordered by Prospector Offshore who are now out of business, two for in-house CSSC Leasing and two for Singapore based ESSM with whom the shipyard is currently in arbitration after ESSM refused to take delivery due to alleged late deliveries.

In DSIC’s case the fate of their jackups rests with two drilling contractors, Seadrill who have eight (8) units on order and Indonesia’s Apexindo. The latter are likely to take delivery at some point when the market improves but the Seadrill units are of course subject to the ongoing re-structuring of the Norwegian outfit and their ability to raise enough funds to pay for not only the jackups but also four UDW drillships on order in South Korea.

What of the other Chinese yards? ZPMC have four jackups under construction or completed awaiting acceptance. Three of these, Jap Driller, Lovansing and Lovanda are believed to have Norwegian owners and there has been no word on these since 2016. The other is a rig for KS Drilling who may take delivery eventually and have been actively marketing the rig in Indonesia. They would probably be equally willing to sell the unit.

CSSC have been building three rigs of a new design, Zentech R-550-D, for Alliance Offshore, a subsidiary of TSC Group Holdings and have successfully delivered the first which was sold to Indonesian outfit Harmoni Drilling but has remained idle in the shipyard since December 2016. There has been no recent news on the other two, one of which was to have been delivered late last year and the other scheduled for mid 2018.

CSIC have also been left holding the baby, on five jackups, four ordered by FTS Derricks, a subsidiary of Singapore’s Falcon Energy who cancelled their construction contracts last month as they could not pay for the rigs, and another by Singaporean speculator ES Holdings from whom nothing has been heard for some time.

Meanwhile COSCO would appear to be the one rig with little to worry about. They have five (5) rigs under construction, two for Northern Offshore, one for KS Drilling, one for India’s Dynamic Drilling and one for Foresight Offshore. All these owners are bona fide drilling contractors and likely to take delivery eventually, albeit only when the market improves.

Of the rest, Indonesia’s DDX Paxocean shipyard in Batam have been unable to persuade Petrolor Oilfield Services, a Chinese company, to accept delivery of its two CJ-46 jackups, both of which are complete and stacked in the shipyard, one since 2015 and the other early in 2017. China’s Zangzijiang shipyard has one unit ordered by MENA Offshore pending delivery after completion in 2016, CPLEC have two jackups of their own design to find buyers for and lastly Tai Zhong Binhai shipyard also have a rig which is said to have been completed in late 2016. It is a new Chinese design and the yard’s first foray into jackup construction which are probably serious disadvantages when it comes to find a buyer.

 In summary, new rigs are beginning to find buyers and shipyard have been prepared to think outside the box of ways to lessen their inventory. The Singapore yards have a considerable advantage in that they will have already received a 20% down payment from the original owners (and possibly even progress payments) which allows them more leeway to offer discounts whereas the majority of rigs ordered in China only required a down payment of 5%.  Also from a quality perspective it was always likely that the Singapore rigs would be sold first. With Borr proving to be the exception that proves the rule, it is fairly certain that the only jackups that will actually be delivered this year will be those with a contract to go to.

ASIA PACIFIC CRISIS IN MID WATER?

The recent announcement by Diamond Offshore that they have decided to mobilize moored deepwater semi Ocean Onyz from cold stack in the Gulf of Mexico all the way to the Asia Pacific, aboard an expensive Heavy Lift Vessel to boot, suggests that Diamond, for one, have noticed the dearth of floaters within the region capable of drilling in shallow to mid water depths. The Ocean Onyx, an ODECO Ocean Victory Class design, was built in 1973 and started life as the Ocean Voyager. It underwent a major overhaul and was rebuilt at KeppelFELS in 2013, in the process being renamed Ocean Onyx and now classed as a fifth generation floater. The rig is rated for 6,000ft water depths, has an eight-point mooring system and living quarters for 140-men and is perfect for this region, especially for Australia where they tend to prefer 8-point moored semis. It worked in Trinidad and has been cold stacked in the US Gulf since early 2016. Diamond have said it will remain cold stacked when it arrives in Malaysia and will not be reactivated until a contract is found for it. In reality, this might not take too long.
The region’s mid water floater fleet has been critically degraded during this downturn. From 2011 onwards, we have lost a whole flotilla of floaters to the scrap yard, all of which had been plying their trade in the region until they were removed from service. The list includes Atwood Falcon, Atwood Eagle, Ocean Epoch, Ocean General, Ocean Quest, Transocean Legend, GSF Explorer, Sedco 601, Noble Discoverer, MG Hulme and more recently Songa Venus and Naga 1/Hakuryu 3.
In the mid water market sector this leaves us with Doo Sung, Ensco 5005, Songa Mercur, all currently cold stacked, plus Deep Venture and Stena Clyde currently warm stacked and lastly with Hakuryu 5 and Saipem’s Scarabeo 7 which are the only mid water floaters currently operational.
Of the cold stacked units Doo Sung has already been up for auction twice and is now the subject of a third auction to be sold off as scrap. Songa Mercur is under arrest in Singapore as a result of the bankruptcy of Opus Offshore and is set to follow Songa Venus in being auctioned off for scrap before year end. There has been no recent comment with regard to the fate of 1982 built Ensco 5005 but Ensco have stated that the acquisition of Atwood Oceanics could allow then to further reduce their fleet of aging units which could include the former Nymphea and Pride South Atlantic.
With the Stena Clyde, now 41 years old and comfortably the oldest rig in the region, closeted in Darwin Australia and therefore unlikely to bid on work in South East Asia, it is been left to the Hakuryu 5 to garner any work going in the region and it has succeeded in finding work in  every year since 2013. It is currently contracted through until Q3 2018. The Scarabeo 7 is chartered by ENI on a long-term charter that began in 2014 and is not available until June 2018.
The deepwater segment, to which the Ocean Onyx will rightly belong, has one rig cold stacked, Ocean America and three operational, Ensco 5006, Ocean Apex and Ensco MS-1, all contracted in Australia and likely to remain there.
Some recent contract awards for mid water floaters at the higher end of the 400ft-4,999ft mid water range have been awarded to moored ultra deepwater units such as Ocean Monarch, one of five moored rigs rated between 8,000ft and 10,000ft water depths currently in the region. But there are currently six (6) tenders outstanding for moored semis that are able to work in water depths under 1,000ft and the operators are struggling to find a suitable rig. The one operator who has felt the unavailability of a shallow water moored floaters most of all is Pertamina Hulu Energi North Sumatra Offshore in Indonesia who have frantically been scouring the market for a semi capable of working in 345ft water depths and had zero response despite three tenders issued and a one-year charter on offer.
So, it is not surprising that Diamond believe there are more potential opportunities for a moored semi over here rather than in the US Gulf. What is a little strange is that Diamond have two moored semis currently cold stacked in the region already, Ocean America (built 1988) and Ocean Rover (1972). Maybe this is a hint that these two may not be around for much longer.
It would not be a surprise to see more mid water moored floater arrive in the region. Mind you there are only fifty-eight (58) competitive units left around the world in the 400ft-4,999ft class, 69% of which were built between 1973 and 1989. Nineteen (19) are cold stacked and likely primary candidates for the scrap yard in the near future. Sixty-three (63) of this class have already been scrapped. Could this sector be the first to see some new building?

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BORR THREATENS TO RUN OUT OF NORWEGIAN GODS

Borr Drilling’s recent splurge in the jackup market, acquiring Transocean’s fleet of ten (10) rigs plus the five (5) that Transocean had under construction at KeppelFELS, and now another nine (9) “stranded” rigs from Singapore’s PPL shipyard, added to the two (2) distressed units they purchased off Hercules earlier, will give them eventually a fleet strength of twenty-six (26) units, catapulting them into fifth place behind Ensco, COSL, Shelf and Paragon and ahead of Seadrill, Noble, Maersk and Rowan – although if the rumours about Rowan acquiring Maersk are correct they will drop down one place.

The new boy in town will have a very modern fleet. Once all the new rigs are delivered, between now and early 2019, Borr will have an average fleet age of around 5 years, comfortably the youngest fleet amongst its international competitors, especially against Ensco, Paragon and Shelf who still have a significant fleet of “legacy” rigs.

So, is this a good deal?

Many analysts have been negative about the acquisition of the nine (9) rigs from PPL. I contend that they have not looked at this carefully enough nor considered it in the light of the wider world of our worst ever downturn which would seem to have bottomed out with some green shoots of a recovery.  

It is surely good business for both parties. Having been lenient for almost two years after the rigs were completed PPL eventually lost patience with Oro Negro  and Perisai, both of whom are in financial strife and who never looked likely to raise the funds needed to pay off the shipyard. PPL, at the time the orders were placed in 2013 and 2014, have already pocketed the 20% deposit on the sales price of $208 million per rig from both Perisai and Oro Negro as well as from Marco Polo. Throw into the equation the fact that there is a total of around eighty-six (86) new “stranded” jackups sitting around in various shipyards in China and Singapore looking for new owners then making a loss of just $15m for nine (9) rigs in this depressed market is in my opinion clever business. Let’s see what the Chinese rig builders and even KeppelFELS eventually get for their rejected units. They are going to have to wait a long time before they can sell them for more than $145m. The bonus for PPL is that they have also divested themselves of three (3) rigs they had blundered into building on speculation, caught out by the downturn. Someone in the yard must be heaving a sigh of relief.

it is rumoured that Borr had also approached KeppelFELS who it is said did not offer quite the same discounts thus leading to the deal with PPL. They do not seem to have approached any Chinese shipyards but zeroed in on a yard with a proven product design and known for consistent quality.

From Borr’s perspective they have acquiring nine (9) 400ft water depth capable premium rigs for around $145 million apiece at a total of $1.3bn which contrasts with the $200 million they would have to have paid just three years ago. This must be a coup. An initial down payment of $500 million is to be made and Borr have already raised this with a very recent equity offering. The balance of the $1.3 billion is being financed by a loan raised by the shipyard on which Borr is paying interest.

Some analysts though are concerned that Borr will collapse as they have no track record and are highly unlikely to find it easy to contract their entire fleet anytime in the foreseeable future. Borr, with experienced management from Noble and Seadrill, will surely have factored this into their equation as well of being assured of funding and will be expecting the initial two years to be tough. But they will see themselves well placed when the market does return. They will have a nice mix of North Sea capable units and highly capable jackups for more benign environments. They have two jackups currently contracted in South East Asia, with Chevron in Thailand, and one that is currently idle and in addition have two with contracts in West Africa. Their integrated services arrangement with Schlumberger, who have a 20% stake in the company, is also expected to provide some work. 

One worry for this region is that once the PPL and KeppelFELS rigs start emerging from the shipyards, beginning at the end of this year, fourteen (14) in total to join the three (3) already here, they will flood the Asia Pacific market as they are more likely to remain located over here until a contract is found for them elsewhere and will doubtless be offered for work within the region. This will play havoc with the regions utilization rates – unless of course Borr makes some strategic mobilizations to other theaters, likely the KFELS Super B units.

Borr have named their rigs after Norwegian Gods. At this rate of acquisition they will soon run out of Gods but they will certainly need the help of the gods in surviving the next couple of years.

ONGC REAP THE BENEFIT OF DESPERATION

ONGC India have now opened the commercial bids for their tender for eight (8) jackups, spread over four categories, which drew bids from thirty-two rigs. They must be delighted with the results. Not so for drilling contractors who have looked on in astonishment at a new low rate for a premium jackup, around $25,000/day for a 2013 built rig that cost $160m to build.

The “low” bidder, and you can’t go much lower, of Category I for five (5) jackups was Greatship who offered their LeTourneau Super 116E design Greatship Chaaya, at rate not seen since the dark days of year 2000 and certainly the lowest ever rate for a premium rig built this century. Greatship added more misery to its competitors by also offering another premium rig, Greatship Chetna, a KFELS B Class unit delivered in 2009 at a cost of $180m, at another lowly rate of around $27,000/day and was inevitably low bidder in the Category IV class for an HPHT rig. This category had drawn nine bids, all premium rigs.

The other low bidder, for Categories II and III was, as expected, Shelf Drilling, with dayrates offers around $32,000/day. The 1982 built JT Angel was low bidder for Category II and for Category III Shelf offered two rigs, 1982 built Harvey Ward and 1978 built Galveston Key, at the same rate although only one of these will be awarded a contract.

As is their wont ONGC will now offer the remaining four available slots in Category I to the next four lowest bidders providing they match the Greatship rate. This will be between Dynamic’s Victory Driller and Valiant Driller and Shelf’s Ron Tappmeyer, Trident 12 and Compact Driller, all apart from the latter built between 1978 and 1982. For “legacy” rigs in India’s low operating cost environment the rates offered by Dynamic and Shelf appear to be about right in today’s cut throat world. After all there is realistically little alternative except for the scrapyard. 

Greatship and the other winners that agree to the Greatship rate will have to live with those rates for three (3) years.

Spare a thought for the biggest loser. Aban offered a total of ten (10) rigs, 66% of their entire fleet, and not one will be in line for a contract. Jindal and Hallworthy too, offering a combined six (6) rigs, also lost out.

Spare a thought too for the “legacy” rigs that will lose out. One of Harvey Ward or Galveston Key, both Dynamic operated Paragon M116 and Paragon L786, Aban III, Aban IV, Foresight Driller III and Foresight Driller IX. Surely it’s time for a final voyage to Alang?