Contract drilling company Rowan says the Bob Palmer, one of the company’s “Super Gorilla” class rigs, will become the first jack-up ever in the U.S. Gulf of Mexico to fetch a day rate exceeding $200,000.
However, even with rapidly escalating day rates for all classes of offshore drilling rigs in the U.S. Gulf, Rowan believes another 15 to 20 jack-ups could depart the region for better deals abroad. Although Rowan executives did not mention it, one of the jack-ups headed out of the Gulf of Mexico will be Songa Offshore’s Tellus rig which is headed to Alaska in late May or early June to drill Cook Inlet prospects for partners Escopeta Oil and Centurion Gold.
Rowan would not identify its Gulf client for the Bob Palmer, stating only that it is “a major integrated oil and gas company” wanting to drill one or more “ultra-deep” wells, presumably in the relatively shallow waters of the Gulf’s continental shelf, where Rowan jack-ups typically operate.
The two-year contact is expected to begin during the first quarter of 2007, Rowan said, noting the deal is valued at $160 million to $170 million, or roughly $225,000 per day.
“This contract reaffirms the market for drilling high pressure/high temperature wells deeper than 25,000 feet and provides the highest rate ever for a jack-up rig in the Gulf of Mexico,” Rowan CEO Danny McNease said.
Escopeta President Danny Davis he said he got a competitive rate for the Tellus, but it took him two months to find the right jack-up for the right price.
Rowan drilling BlackbeardRowan is no stranger to deep drilling on the Gulf’s continental shelf. The company’s Tarzan class jack-up Scooter Yeargain is currently drilling an ultra-deep gas prospect for ExxonMobil known as Blackbeard.
Blackbeard is certainly among the most closely watched exploration wells in the world, partly because of the well’s projected depth of 35,000 feet or greater, and partly because ExxonMobil is venturing into virgin territory where the targets are huge but the subsurface temperatures and pressures are extreme.
“Hopefully, they’ll be finished very shortly and will have some positive results,” William Provine, Rowan’s vice president of investor relations, told industry analysts March 7 at the Raymond James and Associates Institutional Investors Conference in Orlando, Fla.
The Bob Palmer, delivered to Rowan in August 2003, ranks as one of the company’s most capable jack-ups. It is an enhanced version of the company’s Super Gorilla class jack-up, designated a Super Gorilla XL. Additionally, the rig is outfitted with 713 feet of leg, 139 feet more than Rowan’s Gorillas V, VI or VII, and has 30 percent larger spud cans enabling operation in the Gulf of Mexico in water depths up to 550 feet. It also is able to operate in water depths up to 400 feet in the hostile environments offshore eastern Canada and in the North Sea.
According to Rowan’s latest offshore fleet and contract status report, the Bob Palmer is currently contracted to Marathon for a deep gas well on the Gulf’s continental shelf. However, the rig is generating a day rate in the “low” $120,000, versus the $225,000 a day Rowan will get beginning in early 2007.
Owners want longer term contractsDespite the overall improvement in Gulf of Mexico day rates, rig owners want longer term contracts. Rowan’s Provine noted that every offshore region of the globe in which Rowan operates is suffering from a lack of jack-ups.
“We can pick up the phone today, talk to them (clients) and move one of our rigs out of the Gulf of Mexico to any one of these areas and at attractive rates with term contracts,” he said.
Additional rigs likely will leave the U.S. Gulf for drilling assignments in Mexico, West Africa, the North Sea, Saudi Arabia and India, “unless U.S. E&P companies begin to offer these same incentives of day rate increases and long-term contracts,” Provine said.
Rowan, which is moving four jack-ups from the U.S. Gulf to Saudi Arabia under contract to state-owned Saudi Aramco, received a hefty $40,000 premium for a class of rig that would yield $65,000 per day in the U.S. Gulf.
Moreover, Aramco picked up all rig mobilization expenses for the four jack-ups and 60 percent of the day rate until the rigs actually start work offshore Saudi Arabia, Provine said.
“The combination of global rig demand and supply deficits in many of the international markets, long term contracts and high day rates continue to encourage migration of jack-ups out of the Gulf of Mexico,” he added.
Rowan figures that by this summer the U.S. Gulf could be down to 87 to 97 jack-ups, depending on how many of the 10 or so cold-stacked rigs are refurbished by industry and returned to service. That compares to 101 jack-ups prior to last year’s hurricane season.
Rowan alone lost four rigs to hurricanes Katrina and Rita, representing about $200,000 in day rates. “We were just devastated by these two hurricanes,” Provine recalled.
On the bright side, rigs destroyed or severely damaged by hurricanes in the U.S. Gulf served to further increase demand in an already tight global rig market, spurred by increased exploration and development drilling on exceptionally strong commodity prices.
Since last year’s storms, day rates for Rowan’s various rig classes are up 32 to 97 percent, Provine said. “Everybody says that’s about as high as we’re going to go (but) I’d like to differ with them,” he said.