The Offshore Rig Market: A Whole New Ballgame · A whole new ball game What to expect Houston Offshore Finance Forum / May 2017 •Rig Contracts – “firm” is not an appropriate

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Presentation

The Offshore Rig Market: A Whole New Ballgame

3 May, 2017

Tom Kellock, Head of Offshore Rig Consulting +1 832 463 3020

[email protected]

7th Annual Houston Offshore Finance Forum

mailto:[email protected]


Agenda

The good news

The bad news

A lesson from the past?

What’s different this time

What to expect

2


Finally some good news:

Houston Offshore Finance Forum/ May 2017

• Demand for all types of offshore rigs appears to have stopped falling

• Backlogs have stabilized

• New fixture day rates have (?) reached a plateau

• No more rigs are being ordered

• Newbuild deliveries have slowed to a trickle

• At most a handful of the ‘Sete Brasil Rigs’ will be completed

3


Looks like an uptick for rigs under contract!

Houston Offshore Finance Forum/ May 2017 Good News

4

0

100

200

300

400

500

600

700

800

Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017

Rigs under contract (jackups, semis, drillships, tenders)

© 2017 IHS Markit Source: IHS Markit


…and more importantly for rigs at work


5

0

100

200

300

400

500

600

700

800


Working rigs (jackups, semis, drillships, tenders)



Floater backlog has stabilized


6

0

200

400

600

800

1,000

1,200

1,400

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

On order and under construction rigs are counted

All floating rigs -Contract backlog days per rig

Source: IHS Markit

Co

ntr

act

backlo

g d

ays p

er

rig

© 2017 IHS Markit


As has jackup backlog


7

0

100

200

300

400

500

600

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

RWD <= 300 ft

RWD > 300 ft

Global jackup backlog days - per rig - by rated water depth

Source: IHS Markit © 2017 IHS Markit

Da

ys

of

Ba

ck

log

/ P

er

Rig


The day rate decline seems to have ended


8

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000


300' IC JUs > 300' IC JUs Midwater Semis Deepwater SemisDeepwater Drillships Ultra-deepwater semis Ultra-deepwater drillships

New Fixture Rates



But unfortunately there’s also some bad news:

Houston Offshore Finance Forum / May 2017

• The huge over-supply of all rig types persists

• Attrition is not solving the problem (at least not yet)

• Jackup attrition never really got going for IC rigs

• Floater attrition has slowed

• Hard to believe that earned day rates have stopped falling

9


Almost half the fleet is uncontracted

Houston Offshore Finance Forum / May 2017 Bad News

10

Under Contract, 447

Hot stacked, 38

Warm stacked, 172

Cold stacked, 157

Yard, 19 Other, 23

Current Status of the Global Offshore Rig fleet (jackups, semis, drillships and tenders)


Total of 856 rigs


Do contractors really expect to put more than 170

(warm-stacked) rigs back to work in the near future?

Houston Offshore Finance Forum/ May 2017 Bad news

11

0

50

100

150

200

250


Warm-stacked rigs (jackups, semis, drillships, tenders)



…while the pile of cold-stacked rigs keeps growing


12

0

50

100

150

200

250


Cold-stacked rigs (jackups, semis, drillships, tenders)



Floater attrition has slowed and for IC jackups it is still

negligible


13

0

2

4

6

8

10

12

14

16

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

IC Jackups Floaters

Offshore Rig Attrition



Average earned rate for deepwater rigs still appears

high, but falling


14

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000


Average Earned Rate - Deepwater Floaters*


*Rated water depth > 3,000 ft


For jackups the available data may be misleading….


15

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000


Average Earned Rate - All Competitive Jackups



How many of these names do you recognize?

Houston Offshore Finance Forum / May 2017 A Lesson from the past?

16

0 5 10 15 20 25 30 35 40 45 50

Key Drill

Maersk Contractors

Loffland Brothers

Diamond M

Dixilyn-Field

Atwood

Foramer

Forex Neptune

Marine Drilling

Western Oceanic

Transworld

Zapata Offshore

Rowan

Reading & Bates

Santa Fe

Sonat

Sedco/Sedco Forex

Global Marine

ODECO

Penrod

Contractors managing at least ten rigs in January 1985

Source: IHS Markit © 2017 IHS Markit Number of rigs


As we don’t have unlimited time…

Houston Offshore Finance Forum / May 2017 A Lesson from the past?

17

0 5 10 15 20 25 30 35 40 45 50

Key Drill

Maersk Contractors

Loffland Brothers

Diamond M

Dixilyn-Field

Atwood

Foramer

Forex Neptune

Marine Drilling

Western Oceanic

Transworld

Zapata Offshore

Rowan

Reading & Bates

Santa Fe

Sonat

Sedco/Sedco Forex

Global Marine

ODECO

Penrod

Contractors managing at least ten rigs in January 1985

Source: IHS Markit © 2017 IHS Markit Number of rigs


Dangerous to think it’s just another industry cycle

Houston Offshore Finance Forum / May 2017 What’s different this time

• Oil and gas are finite commodities

• There’s less out there than before

• Look what has happened to the US Gulf jackup market when oil was at $100

• Imagine the impact of another Macondo

• Or an arctic spill of almost any magnitude

• Is peak demand now just around the corner?

18


Operators now have a choice


• Shale oil and gas is soaking up operator discretionary investments

• Limited exploration risk

• Predictable costs

• No longer just for the independents

• In the US particularly attractive

• Zero political risk

• Likely decreasing environmental issues under current administration

• And now signs of spreading internationally to a significant degree

• Argentina says $6-8 billion will be invested in Vaca Muerta this year...

• …rising to $20 billion per year from 2020

19


But some good news


• Most majors are exiting from oil sands

• Falling discovery volumes must eventually cause supply problems

• Offshore fracking could be a game changer

• Costs will probably never be this low again so no better time for

• Commitment wells

• Exciting exploration prospects

• P&A work

20


A whole new ball game

Houston Offshore Finance Forum / May 2017 What to expect

• Rig Contracts – “firm” is not an appropriate adjective

• Construction contracts – completion no longer means payment and

delivery but looking for a place to stack the rig

• Forget day rates for now – it’s all about utilization

• New entrants will have an ‘unfair’ advantage

• Expect more local content requirements

• Longer term the outlook for day rates is challenging horrendous for two

reasons

• Far too much competition (do we really need 173 players?)

• Operators can’t/won’t pay more unless oil prices rise

21

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The Offshore Rig Market: A Whole New Ballgame · A whole new ball game What to expect Houston Offshore Finance Forum / May 2017 •Rig Contracts – “firm” is not an appropriate