Replies to post #1180 on The Rising Influence of Rising Affluence

[DewDiligence]

I suspect that since the rig is very old (1958), the MMS must've found something not up to snuff.

Thanks—this sounds like a reasonable explanation for CVX’s force majeure declaration. Regards, Dew

[DewDiligence]

Orders Increase for ‘High-Spec’ Jackups

[Does this signify a newfound focus on shallow-water projects, or just a normal cyclical recovery in orders?]

http://online.wsj.com/article/SB10001424052748703572404575634710214112290.html

›NOVEMBER 24, 2010, 2:59 P.M. ET
By RYAN DEZEMBER

HOUSTON—Since the start of October, drilling companies have ordered at least 17 new rigs, a wave of spending that signals optimism oil prices will remain high and producers will continue to demand the latest advances in equipment as they tap increasingly hard-to-reach offshore reservoirs.

Largely built "on spec"—that is, without an existing contract from an oil and natural-gas explorer—those orders mark a clear ending to a two-year drought in rig purchases as drillers like Transocean Ltd., SeaDrill Ltd. and Atwood Oceanics Inc. look to update and bolster their fleets.

The move also indicates how the global enthusiasm for exploiting offshore oil and gas continues, despite the slowdown in U.S. drilling that came as a result of the Deepwater Horizon oil spill in the Gulf of Mexico.

Of the 17 orders so far this quarter, 13 are for jackup rigs, which stand on legs and typically operate in water up to 400 feet deep. By comparison, only eight jackups were ordered in the two years that ended Sept. 30, according to Tom Curran, senior analyst with Wells Fargo Securities' oilfield-services and drilling team.

The quarter's four orders for floating deep-water rigs—which can take three years or more to construct—are the first that shipyards have seen since 2008, Mr. Curran said. The orders primarily have gone to yards in Southeast Asia.

Mr. Curran said some of the recent rise in orders can be attributed to pent-up demand that has "sprung to life" with improved financing and construction costs that have fallen by as much as 20% since 2008. But most of the orders are intended to address growing demand and rejuvenate aging fleets, Mr. Curran said.

"There's a clear need for more rigs with the capabilities of those that are being ordered," he said.

The so-called "high spec" jackup rigs that are being ordered are different from older models in that they have more storage space for supplies, can carry more pipe needed for deeper and horizontal wells, and offer more drilling torque.

All told, the global jackup fleet of 466 rigs includes 338 that were built before 1990, according to energy analysts Tudor Pickering Holt & Co.

Those older rigs are increasingly losing work to newer rigs, which producers are choosing both because they need the added drilling power and because they offer efficiencies, according to analysts. A rig with more storage space, for example, can mean savings through fewer supply-boat trips.

Atwood Oceanics has ordered a pair of $190 million rigs and signed options to buy three more, at the same time the company idled three of its older rigs. "We did not see attractive prospects for any of these rigs materializing in the next year," Atwood Chief Executive Robert J. Saltiel said in a conference call last week.

Like other companies, Atwood Oceanics cites the widening gap between the day rates of newer rigs and those of older ones in placing its orders. Mr. Saltiel said he expects the new rigs to bring in between $130,000 and $150,000 per day once deployed in 2012.

While some of the recent rig orders have been placed by smaller companies, including a pair commissioned by privately held Houston upstart Prospector Offshore Drilling LLC, the sector's largest players are also pushing to modernize their fleets.

Last week Transocean announced that it had hired a Singapore shipyard to build it a $195 million jackup.

And SeaDrill said it had ordered two shallow water rigs that will cost a combined $380 million. That announcement came four days after the company said it ordered a pair of $600 million deep-water drill ships and about a month after it contracted for two $200 million jackup rigs.

Ultimately Bermuda-based SeaDrill has the option to add two more deep-water drill ships and six additional shallow-water rigs to its orders.

Nearly every recent jackup order has come with an option to add more rigs to the contracts. And signs point to several more orders in the coming months.

DryShips Inc. of Greece on Tuesday announced that it has an agreement with a South Korean shipyard to potentially build it four $600 million deep-water rigs.

Mr. Curran said he expects Brazil's state-controlled oil company, Petróleo Brasileiro SA, to order nine of its proposed 28 new deep-water rigs before year-end. And analysts with Barclays Capital said in a recent study that companies in India and China are planning orders.

Meanwhile companies like Ensco PLC and Noble Corp. are unlikely to sit out the ordering frenzy, the Barclays analysts said: "We expect the traditional drilling contractors are increasingly considering new builds as these companies are having difficulty picking off assets from smaller, non-traditional owners."‹