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28 comments on How Long Does It Take to Build a Rig? And Why Aren't Rigs Cat 5 Certified?

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Ben on September 28, 2005 - 10:53pm Permalink | Subthread | Parent | Comments top
Thanks for the insight.  are you a "mad" oilman because things are taking so long?  (grin)

So is there, in effect, a bidding war for rigs?  Will the deep pocket big oil folks get all the new rigs, and leave the little companies to fight over the scraps?  

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Mad Oilman on September 28, 2005 - 11:37pm Permalink | Subthread | Parent | Comments top
Mad Oilman is mad because his industry is one of the most misunderstood yet the most visible in the world. And the most viscerally reviled. With little to no justification.

There really isn't a bidding war for rigs. Day rates define the market. Those willing to pay get the rig.

For the most part, new drilling rig construction is paid for by the owner (the drilling contractor) not the operator (those who lease it).

There are of course exceptions. Anadarko's leasing of an Ensco semi that has not even been placed on order at the shipyard is an example. But look at the nature of the demand here.

Anadarko has spent millions of dollars on deepwater offshore leases. It has also identified millions of barrels of production to produce from these leases. Which will justify those lease fees.

There's a limited number of rigs that can drill deepwater. They locked in long term to the specific equipment they need. And trust me, they did it at $20-25 oil economics, not our current prices.

When the oil market collapsed in 1982 (and Houston was decimated) there were over 3000 land rigs drilling in the US. The following year 800 were operational. That's a lot of scrap, spare parts, and even capital equipment laying around.

It's all gone now. There is no surplus. There are no refurbs. It's all been sold or cannibalized. We're 3 years in to a major rig manufacturing boom. Driven not only by world oil demand but by the nature of the wells being drilled. Given the destruction of capital equipment by Katrina and Rita, this trend will continue for at least three more years. Speculative rigs based on current day rates as well as capitalization in a market in which supply has shrunk considerably in the last two months.

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Rick on September 29, 2005 - 8:09am Permalink | Subthread | Parent | Comments top
This is great information. It could be helpful for further analysis.

I relooked at Skrebowski's buildup analysis for forecasting short to midterm oil output from "megaprojects." It's not clear to me if he is detailing it down to rig-by-rig level, or simply estimating field-by-field.

I think we could take the future rigs by delivery date, multiply by an estimated output for each rig, and subtract the known losses from damaged or lost rigs. Shouldn't this give the incremental capacity (if any, given the damage) coming on line? Add it to the existing capacity, including a decline where it's occuring, and we should get to an accurate total output.

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Mad Oilman on September 29, 2005 - 2:41pm Permalink | Subthread | Parent | Comments top
Rick,

I think your mixing and matching drilling and production. A great majority of exploratory wells drilled are not produced. They are drilled to go after a target and to verify seismic and geological data.

If an exploratory well seems promising, further delineation wells will be drilled to determine the extent of the reservoir (again based on seismic and geologic data).

Once this is done the operator will determine whether the field is economically viable. Is it worth the investment dollars to manufacture a production facility and exploit these resources.

The BP Clair field in the North Sea was discovered in the late 1970's. It is just now going in to production.

So mega projects (Sakhalin Island, Shah Deniz, the AIOC consortium) have already been extensively drilled. And now the production facilities are online, they are producing.

Spooky,

You cannot view the rig market on a regional basis. It is a global market. You are correct that thee is a net loss of rigs out of the GoM but the world market stays the same (less the damaged or destroyed rigs).

We've been losing rigs out of the GoM for years. To Brazil, Western Africa, Asia and anywhere else where local demand outstripped local supply.

The 13 jackups I mentioned are projects I'm currently involved in. They do not make up a comprehensive list of all of the newbuild construction occurring worldwide. India and Japan are adding to their own fleets as well. Rowan has built a new high specification jackup every year for the past 8 years. Noble has upgraded fairly basic semi equipment to deepwater class over the past 7 years.

It is going to be a tight market for offshore equipment for a while. Day rates will reflect this. Expect a lot of long term contracts to be signed at generous terms to the drilling contractors in the next few months.

As with every other boom and bust cycle in the oil industry, we are very much on the up cycle. Build, build, build.

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28 comments on How Long Does It Take to Build a Rig? And Why Aren't Rigs Cat 5 Certified?

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