The Oil Drum

A year ago the perception of a problem with oil supply was much less evident than today.  While Saudi Arabia had a plan to increase production, it was using only some 30-odd drilling rigs, and the debate over its capabilities was not being widely discussed.  Now that Aramco has committed to an increased level of production, they have also had to increase their drilling fleet to a target of around 100 rigs.  (From Baker Hughes it is currently about 46 onshore and 6 offshore ). Because drilling rigs are made of special steels and require some sophistication in manufacture they are built in only a few places, and there is a growing lead-time on getting a new one.  Thus demand for existing rigs is high, and rental costs are going up.  This is impacting the US supply.  Platts has just noted that since other places are now offering longer-term rentals, the US market is beginning to lose out.

"It's a very serious problem," said McNease, adding that he expected 15-20 Gulf of Mexico jack-ups to move elsewhere by the end of next year, based on contract negotiations already under way.  Of those on his migration list, McNease said seven would likely depart by this summer.

     "Rigs will continue to leave the Gulf of Mexico unless people offer longer contracts," said McNease, noting that jack-ups could now command terms of two to five years in the Middle East. "The national oil companies are offering longer terms to lure these rigs there," he said.