Offshore Rig Construction Industry will Record a Significant Rise in Shallow Water Rig Construction Activity

Wednesday 7 March 2012, Amsterdam

The study, which is an offering from the company’s Energy Research Group, provides an in-depth analysis of the global offshore rig construction market and highlights the various concerns, key trends and challenges affecting the offshore rig construction industry, along with leading global companies in offshore rig construction. The report also provides comprehensive data on current offshore rigs deployed worldwide, by rig type. The report provides forecasts for the offshore rig construction market to 2015, provides segmental forecasts of the offshore rig construction market by rig type and provides detailed information on expected newbuilds by rig manufacturing shipyards. It also provides analysis of the demand versus supply scenario of offshore rig markets in the past, present and future. An analysis of the competitive scenario, comprehensive data on newbuilds and current rig fleet scenarios of major offshore drilling contractors globally are also provided for each of the market segments.

Offshore Rig Contractors are Acquiring Rivals as a Beneficial Business Strategy Due to Increasing Cost of Rig Manufacturing and the Poor Credit Situation

Since August 2011, the financial markets have been in a poor credit situation, and this has affected offshore rig contractors in terms of the number of newbuild rig orders they can generate. Due to financial uncertainty, rig contractors and managers have reduced newbuild rig orders to offshore rig construction shipyards. Also, the cost of constructing offshore rigs has increased by 10% in the past six months, and this has led to a temporary stalling of new rig orders. As a result, the smaller players in offshore rig contracting business are considerably losing out on their net asset value, and hence are unable to economically sustain their operating expenses. Due to these difficulties associated with hampering of their regular business functioning, smaller offshore drilling contractors are left with little options than to get acquired by their larger rivals, in a situation of bankruptcy. The latter see an advantage in the same, as a beneficial strategy to inorganically grow by benefiting from the niche technological and marketing forte of smaller players in specific segments and geographies, at relatively lower costs of acquisition in such a financial situation.

For example, deepwater drilling companies Transocean Ltd. and Seadrill recently agreed to fully or partially purchase offshore drilling companies as part of their business expansion plans. In August 2011, Aker Drilling ASA was fully purchased by Transocean as part of its ultra-deepwater rig fleet expansion plans, and Seadrill bought 33.75% of Asia Offshore Drilling. Prior to this, Seadrill acquired Scorpion Offshore and lost a bid against Ensco plc to buy Pride International Inc, in February 2011.

In summary, demand for offshore drilling activity and offshore rigs is expected to increase as the global search for fresh hydrocarbon reserves continues. For example, there are currently deepwater and ultra-deepwater explorations offshore Brazil and West Africa, successful discoveries offshore Norway and explorations in harsh offshore environments such as the Arctic region.

Offshore Rig Construction Industry will Record a Significant Rise in Shallow Water Rig Construction Activity

As most countries which possess commercial potential in terms of their offshore reserves seek to achieve energy self-sufficiency, the offshore exploration and production industry is expected to make significant investments in the discovery and development of new offshore reserves. In turn, this will lead to infrastructure investments by exploration and production companies in the form of new build offshore rigs, particularly for untapped shallow water regions with exploration potential. Subsequently, offshore rig construction expenditure is expected to rise from 2011–2015.

However, the cost per shallow water rig, which declined by 15%–20% from 2008–2010, will continue to decline until 2012.

Rapidly Growing Demand for Premium and Ultra-Premium Jack-Ups is Expected to Create a Shortage of Premium Jack-Ups by 2015

As offshore drilling in shallow waters demands advanced drilling capabilities, such as the ability to operate jack-up rigs in water depths exceeding 350ft, demand for premium and ultra-premium jackup rigs is expected to increase by 2015. Premium and ultra-premium jack-up rigs have higher offshore rig day rates than standard jack-up rigs.

Advanced shallow water drilling activity is forecast to rise, and as a result, demand for premium and ultra-premium jack-up rigs is expected to rise in line with this.

Rise in Deep and Ultra-Deep Water Drilling in Brazil is Expected to Strengthen the Drillship Construction Industry

Offshore Brazil is considered a region with strong potential for deepwater exploration and production by oil exploration and production companies. Global offshore drilling contractors such as Transocean and Seadrill have invested considerable capital to ensure the future deployment of deepwater rigs in offshore Brazil, in the form of orders for drillships and semisubmersibles. In addition, Petrobras, the national oil company of Brazil, has ordered a substantial number of drillships to be deployed in the region. For example, Transocean Ltd., Pride International and Noble Drilling have ordered 17 drillships for drilling operations in offshore Brazil. This is expected to strengthen the business development of global rig construction companies, which are primarily based in South Korea. The business scenario has also led to an increase in rig construction activity in Brazil, as local companies such as Odebrecht have investment plans for deepwater rig construction until 2013. The federal government of Brazil is also expected to encourage investments in offshore rig construction through a number of initiatives.

However, business success for Brazilian rig construction companies, with regard to deepwater rig construction, will be to initially partner with international rig construction companies in order to gain technological expertise and experience in rig building. In order to gain substantial market advantage and competitive standing, Brazilian shipyards will need to provide rigs to offshore drilling contractors at competitive prices, such as those offered by South Korean shipyards. As a result of this, the Brazilian shipbuilding industry is expected to record high levels of growth in terms of its rig building business.