$2 billion in deepwater rig orders

Deepwater rig orders pour in on continuing strong drilling market; Ensco even building without first securing lease

Ray Tyson

For Petroleum News

Another roughly $2 billion worth of various deepwater rig deals were consummated over the past two months, reflecting the drilling market’s continuing robust health. In fact, one big offshore drilling company is so confident it ordered a new build without first securing a lease, a transaction that was unheard of just a few years ago.

“We have elected to proceed with construction … in advance of securing a firm drilling commitment for the rig, as we believe that the window of opportunity to secure a 2009 delivery and achieve a competitive cost for the rig was closing,” said Carl F. Thorne, chairman and chief executive officer of Ensco International.

In late September, Ensco announced that one of its subsidiaries had entered into an agreement with the Keppel Fels Ltd. shipyard in Singapore to construct an “ultra-deepwater” semi-submersible rig to be named Ensco 8502. The total project cost was expected to be around $385 million, with expected delivery late in the fourth quarter of 2009.

“We continue to see strong demand for deepwater equipment and are in discussions with several customers that have expressed interest in Ensco 8502,” Thorne said.

Ensco 8502 will be the company’s third semi-submersible rig in the 8500 Series and the company’s fourth deepwater semi-submersible rig, joining Ensco 7500, delivered in 2000, and Ensco 8500 and Ensco 8501, which are under construction by Keppel Fels. Ensco 8500 and Ensco 8501 are expected to be delivered in the second quarter of 2008 and first quarter of 2009, respectively, and both are said to be committed under long-term drilling contracts upon delivery.

“With all three of our other deepwater rigs committed well into the future, and with our contract backlog now in excess of $3 billion, we believe that the time was right to act,” Thorne said.

The Ensco 8500 series deepwater semi-submersibles are an enhanced version of Ensco 7500, and are based on an Ensco proprietary design. The 8500 series rigs will be capable of drilling in up to 8,500 feet of water, and can readily be upgraded to 10,000 feet if required, the company said. Enhancements include a 2 million pound quad derrick, offline pipe handling capability, increased drilling capacity, greater variable deck load and improved automatic station keeping ability. With these features, the 8500 series rigs will be especially well-suited for deepwater development drilling, the company added.

Devon signs second long-term contract

Devon said its total commitment under the terms of the four-year contract for the West Sirius is about $690 million.

The West Sirius is designed to drill to 37,500 feet in up to 10,000 feet of water and is said to be capable of drilling any prospect in Devon’s deepwater inventory. The rig is currently under construction, and is scheduled for delivery from Singapore in the second quarter of 2008.

Prior to the West Sirius contract, Devon entered into a four-year contract for Diamond Offshore’s Ocean Endeavor deepwater drilling rig. The Ocean Endeavor is being refurbished in Singapore, and is scheduled to arrive in the Gulf of Mexico in the second quarter of 2007. The Ocean Endeavor is capable of drilling to 35,000 feet in 10,000 feet of water.

“This second long-term rig agreement reflects our growing confidence in the value of Devon’s deepwater Gulf of Mexico position,” said Stephen J. Hadden, Devon’s senior vice president of exploration and production. “Our successful lower Tertiary exploration program, progress toward commercialization and strong prospect inventory present us with an extensive set of deepwater Gulf of Mexico drilling opportunities.” With two deepwater rigs under contract, he added, Devon will have additional capacity and flexibility to test, appraise and develop multiple prospects in the lower Tertiary and Miocene trends.

“Our growth strategy in the deepwater Gulf was to build a strong exploration portfolio through lease sales, joint ventures and acquisitions,” Hadden said.

Thus far, Devon has scored four discoveries in the Lower Tertiary and has an additional 19 prospects in the trend, six of which the company operates. The company also has identified 16 Miocene prospects, five operated by Devon. “These opportunities represent resource potential that could more than double the company’s current reserve base,” Hadden said.

In late August, Chevron awarded deepwater driller Transocean an estimated $670 million contract to build an enhanced Enterprise-class drillship, the third such contract award for Transocean this year and the second award from Chevron, following a five-year deal for the construction of the Discoverer Clear Leader announced in March.

Transocean said the new drillship, like the Discoverer Clear Leader, was being designed to include “the most advanced drilling capabilities” in the offshore drilling industry, “building on Transocean’s successful Enterprise-class drillship design and the company’s industry-leading position in the ownership and operation of high-specification” mobile offshore drilling units for deepwater and harsh environment drilling applications.

Chevron awarded Transocean a five-year contract for the new drillship, but has the right to convert the contract to a duration of three years, if declared by September 2007, Transocean said, adding that the contract is expected to commence during the first quarter of 2010, following shipyard construction, sea trials, mobilization to the U.S. Gulf of Mexico and customer acceptance.

Revenues, which could be generated over the five-year contract period, are about $862 million, or about $609 million should the contract be converted to a duration of three years.

Construction of the dynamically positioned, double-hull drillship is scheduled to take place at the Daewoo Shipbuilding and Marine Engineering Co. Ltd. yard in Okpo, South Korea, where the two previously announced enhanced Enterprise-class drillships will be constructed.

The new rig will feature Transocean’s patented dual-activity drilling technology, allowing for parallel drilling operations designed to save time and money in deepwater well construction, compared with conventional rigs. The dual-activity technology, along with a new and enhanced top drive system, an expanded high-pressure mud-pump system, expanded completions capabilities and other features of the drillship target the drilling of wells up to 40,000 feet of total depth. The rig will have a variable deck load of more than 20,000 metric tons, while having the capability of drilling in water depths up to 12,000 feet.