published: Thursday, April 13, 2006
This week, offshore rig utilization inched up slightly to 83.6%, continuing its upward trend. And also
continuing the recent trend, the big news in the rig market again focuses on announcements that several more
offshore rigs are going to be built in the next few years.
With a total of 88 MODUs currently under construction or on order, the offshore rig fleet is poised to
experience its largest growth spurt in over 20 years.
The Last Big Boom
During the first few years of the 1980s, the last time oil prices were as high as they currently are,
the boom in offshore rig construction was tremendous. During the 4 years from the start of 1980 to the end of 1983,
a total of nearly 300 MODUs were put into service. 230 jackup rigs were delivered at an average cost
of $35 million each. 48 semisubs were delivered at an average cost of $84 million. 8 drillships were
also delivered at a cost of $72 million each.
In total, about $12 billion was spent on new offshore rigs during the first 4 years of the 1980s. That at a
time when the price of oil averaged a little over $30 per barrel.
Today's Rig Boom
Looking forward at the next 4 years, 2006 thru 2009, there are only about 1/3 as many rigs to be delivered
as during the last rig boom. Of those, 61 jackups are under construction for an average cost of $135 million.
21 semisubs are being built for an average cost of $410 million. And 6 drillships are being built for about
$535 million each.
The table below illustrates the growth of the rig fleet over the next four years and when the
new rigs are scheduled to become available.
|
Current |
2006 |
2007 |
2008 |
2009 |
|
|
New |
Total |
New |
Total |
New |
Total |
New |
Total |
Drillships |
38 |
0 |
38 |
1 |
39 |
3 |
42 |
1 |
43 |
Jackups |
391 |
9 |
400 |
20 |
420 |
28 |
448 |
5 |
453 |
Semisubs |
164 |
1 |
165 |
1 |
166 |
11 |
177 |
7 |
184 |
Total |
593 |
10 |
603 |
22 |
625 |
42 |
667 |
13 |
680 |
Then vs. Now
In terms of the value of rigs being built, there are currently about $20 billion
being invested in the construction of new rigs that will be delivered over the
next 4 years. That stands in contrast to the approximately $12 billion spent on rigs
in the first 4 years of the 1980s. When adjusted for inflation, the cost of
the rigs delivered in the early '80s would equate to just over $30 billion today.
Overall, the industry is investing less in inflation-adjusted terms, than it did
during the boom of the early '80s. This makes sense, given that today's oil prices
in the $60 - $70 range still remain below the $80 - $100 inflation-adjusted
price range that dominated from 1979 to 1982.
However, on a per rig basis, a great deal more is being spent now than 25 years ago.
For instance. the cost
for a new jackup rig has nearly quadrupled from $35 million to $135 million. When adjusted
for inflation, the cost of a jackup built in 1980 would cost about $90 million today. The additional $45 million
(50% increase) per rig can primarily be accounted for by the fact that today's jackups
are capable of drilling in water depths more than 100 feet deeper (on average) than jackups built in
the early '80s. And today's jackups can drill to depths over 30,000 feet, whereas rigs built in
the early '80s reached only about 22,000 feet (on average).
Similarly, among floaters, the cost for a new rig today has increased more than 400% in real dollars,
rising from a cost of about $83 million per floating rig to nearly $440 million per rig today. Again
adjusting for inflation, the cost of 1980 floater would be about $210 million today. That leaves an
additional $230 million per rig that must be accounted for in terms of increased capabilities and other factors.
As with the jackups under construction, floaters capabilites have also increased greatly, with average
water depths having increased four-fold from about 2,250 feet to over 9,000 feet, and drilling depths
having also increased about 40%.
Conclusion
The current boom in rig construction still has yet to reach the overall level of activity that made the early 1980s
one of the most active periods in the history of the offshore rig market. But a great deal more is being
spent on each individual rig. While differences in capabilities serve to account for the large increases in construction costs,
they also underscore the fact that offshore oil reserves are becoming more and more difficult to reach.
The costs related to deeper water depths make acquiring these new reserves more expensive, not only in terms
of rigs, but also in terms of infrastructure and field development.
In terms of real dollars, a barrel of oil has basically doubled in value from it's early 1980s price. But the
average cost to build a new MODU has more than quadrupled. Or looking at it another way (to remove the dollars
and inflation), it cost about 1 million barrels of oil to build a jackup in the early 1980s whereas it costs about
2 million barrels of oil today. Thus, the value of the commodity that rigs are used to obtain is not keeping pace with
cost of building new rigs to get at that commodity, even while the market is booming.
Unless oil prices push higher, it will
become increasingly difficult to justify the addition of new more expensive rigs to fleet on par with
the level of investment during the early '80s. And
with the painful downturn that marked the mid-80s thru 2000, companies should rightfully be cautious about
continuing to invest more dollars into the burgeoning rig fleet.
For More Information on the Offshore Rig Fleet:
RigLogix can provide the information that you need about the offshore rig fleet, whether you need utilization and industry trends or detailed reports on future rig contracts. Subscribing to RigLogix will allow you to access dozens of prebuilt reports and build your own custom reports using hundreds of available data columns. For more information about a RigLogix subscription, visit www.riglogix.com.