The Gulf of Mexico likely will lose more shallow-water jack-up rigs to the Middle East and other aggressive international drilling markets, despite the U.S. Gulf’s hot deep-self natural gas play and rig day rates that are approaching historic highs.
It’s also unlikely the U.S. Gulf will see any of the 30-plus announced new builds, many of which are expected to be absorbed by big national oil companies, such as Saudi Aramco, amid an ever-tightening jack-up market. (See sidebar about a jack-up for Alaska’s Cook Inlet on page 15.)
“In short, the national oil companies have a far more ambitious agenda today than they ever did,” said Bernard Duroc-Danner, chief executive officer of big oilfield services company Weatherford International.
Day rate in U.S. Gulf at $62,000
Richard LeBlanc, vice-president of investor relations for contract driller Ensco International, said in May at the RBC Capital Markets energy conference he expects “a minimum” of five to six jack-ups to depart the U.S. Gulf for international markets over the next year.
“Demand is shifting to the Eastern Hemisphere from the West,” he said, adding that while the U.S. Gulf remains an attractive jack-up market, national oil companies are “competing for rigs very aggressively, committing significant dollars to getting those rigs.”
The average day rate for a Rowan jack-up in the U.S. Gulf is about $62,000, compared to the industry average of $48,000, Rowan chief executive Danny McNease said at the RBC conference, noting that contract driller Diamond Offshore recently signed a contract for about $77,500 a day.
He said the U.S. Gulf jack-up fleet already is essentially fully utilized and that “rigs capable of working are probably working in the Gulf of Mexico. We’ll continue to bid higher (and) we think we’ll be successful because markets are going to continue to tighten.”
Rigs will get pulled if rates don’t increase
Nevertheless, “rigs are going to be pulled out of here if the rates don’t go up,” McNease warned. “I mean people are bidding all over the world.”
He said national oil companies have asked Rowan what it would take to move more jack-up rigs to the Middle East.
“Well the answer to that are higher day rates and long-term contracts,” McNease said. “And that’s what these people are offering.”
For example, Saudi Aramco has seven rigs under contract and has told Rowan it plans to have 18 rigs under contract in two years, McNease said.
“Where are these rigs going to come from?” he said. “Where are the rigs going to come from for these other national oil companies that want to increase their activity? Those rigs are going to come out of the Gulf of Mexico, or come from the new build construction.”
Ensco gets $110,000 per day in Middle East
Ensco is said to have secured a Middle East rig contract valued at nearly $110,000 per day, and industry analysts believe rates in that region eventually could top $120,000 per day or more.
LeBlanc said roughly half of the Middle East jack-up fleet is dedicated to drilling for gas to support liquefied natural gas (LNG) projects in the region.
“We also believe this market has legs to it … when you consider the significant investments being made in LNG today,” he said. “To develop this stranded gas, drilling will take place.”
McNease said one “super-major” oil company asked Rowan what it would take to move one of Rowan’s premium, high-specification jack-up rigs to the U.S. Gulf from offshore Eastern Canada once work there is completed.
“Well the answer to that is it’s going to be a day rate greater than $150,000 because that’s what we think we can get in the North Sea,” he added. “That’s the kind of thing that operators are going to have to face up to. If they’re going to participate in the Gulf of Mexico, they’re going to have to match the day rates we’re able to get for those high-end rigs around the world.”
Availability of premium rigs nil to none
In fact, the availability of premium jack-ups that can drill below 15,000 feet to depths of 25,000 feet or greater are nil to none. Only about 10 percent of the worldwide jack-up fleet is classified as premium.
“Increasingly we’re seeing our customers wanting a larger, more capable drilling rig,” Ensco’s LaBlanc said. “These are the ones that are really going to be doing the more difficult drilling going forward.”
In addition to the Middle East and India, LeBlanc said Ensco expects rig shortages in Africa and sees growing demand for high-end jack-ups in such Asia-Pacific regions as Australia, where rates currently range from $90,000 to $130,000 per day.
“Again, I think this is a reflection of a very tight market,” he said. “Operators are having difficulties selling programs and now have to look to 2006 to get some of that work done.”
Weatherford’s Duroc-Danner said his company is targeting national oil companies that desire “one-stop shop” oilfield services.
“They are showing a keen interest in having engineering planning, logistic coordination, drilling efficiencies … managed with as few contractors or vendors as possible,” he added.
Only six of new builds are premium rigs
Of the 30-plus new builds expected to hit the market in a few years, only six of them are the kind of “super-premium” jack-up rig that can reach “ultra-deep” gas prospects on the U.S. Gulf’s continental shelf, Rowan McNease said.
“All the easy stuff has been done,” he said. “We’re going deeper. We’re going into more harsh environments. And that’s what people keep forgetting. They think a drilling rig is a drilling rig. It’s not. Each rig has its own capability.”
