Drilling Market Outlook - Marine Money Kell… · An opportunity for Petrobras and others to...

7th Annual Latin America Ship & Offshore Finance Forum

Rio de Janeiro - September 16, 2010

Drilling Market Outlook

Tom Kellock

Page 2 of 31 Protected by Copyright © 2010 ODS-Petrodata

Today’s agenda

1. Impact on Brazil of Macondo Incident

2. Operating Costs

3. Petrobras Contract Renewals

4. Industry Consolidation

5. The Future of the Offshore Drilling Market


The Impact of Macondo on the Brazil market:

A mass exodus of deepwater rigs from the US Gulf?No – only 4 so far

A dramatic decline in day rates?No – no obvious change

An opportunity for Petrobras and others to charter more rigs at bargain prices?

Possibly – but it hasn’t happened – yet Higher costs for operators and/or contractors?

Almost inevitably


Even in the US Gulf the effects of the moratorium may be short-lived

0

10

20

30

40

50

60

1Q01 1Q03 1Q05 1Q07 1Q09 1Q11 1Q13 1Q15 1Q17

Rig

s

Base case

Scenario 1: Moratorium

Scenario 2: Moratorium with 25% longer time per well

Historical Activity

Supply and Demand ForecastUS Gulf of Mexico Floaters

Possible Consequences of Drilling Moratorium


Operating costs (OPEX) are hard to pin down but are definitely on the rise

OPEX are important because they- set a floor for day rates- impact cash flowbut often appear to get too little attention

Recent figures show moderate increases But this could be misleading Upper limits may be surprising


Latest figures not too scary


But last quarter showed a very different picture

Daily Cash Operating Expenses(Large Fleet)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Deepwater Rigs Midwater Floaters Jackups

Dai

ly O

PEX

(USD

)

Q1 2007 Q1 2008 Q1 2009 Q1 2010

+10.5 % pa

+15% pa

+12% pa

Source: Transocean


Some recent reported rates may surprise you –and these are for non-harsh environment areas

5th gen. ultra-deepwater semi: >$165,000 per day 5,000’ 4th gen semi: > $140,000 per day Midwater semis: > $100,000 per day Premium Jackups: > $65,000 per day


Petrobras rig philosophy

Contracts tend to be renewed But several are coming to an end Will 28 additional rigs be needed ?


Petrobras tends to keep its rigs


Several contracts will expire in the next few years


Will “the 28 rigs” represent incremental demand ?


Will we see more consolidation among contractors?

Some already in the jackup market- Seadrill/Scorpion (7 rigs)- Seadrill/Petroprod (1 rig)- Rowan/Skeie (3 rigs)

And in the floater market- Noble/Frontier (6 rigs)- Diamond/Petrorig (2 rigs)- Grupo R/Petrorig (1 rig)- Songa/Larsen (1 rig)

But both markets remain extremely fragmented


More than 70 companies manage jackupsWorldwide Jackup Managers

September 2010(includes rigs under construction)

Transocean, 65

Ensco, 41

Noble, 40

Hercules Offshore, 32

Rowan, 31

COSL, 26Seahawk Drilling, 20Seadrill, 17Nabors, 16

Aban Offshore, 15Diamond Offshore, 13

National Drilling, 13

Maersk Drilling, 12Kito Enterprises, 11

59 Others, 156


Even Transocean will have less than 25% of the floater fleet


There are many possibilities Seadrill has stated that it is looking at more consolidation

- “There are great opportunities in the rig market” John Fredriksen at Pareto Oil & Offshore Conference

- It already owns a piece of Pride- It is rumoured to be eyeing Transocean

Smaller companies without contracts may be targets- Ocean Rig (4 of 6 w/o contracts)- Pacific Drilling (3 of 6* w/o contracts)- Metrostar (2 of 2* w/o contracts)- SeaDragon (1 of 2 w/o contract)- Prospector Offshore (2 of 2 w/o contracts)

While Brazilian contractors have contracts for their rigs none has more than six owned and managed floaters…

* Pacific Drilling and Metrostar each have two joint venture rigs


So what’s to come

1. The building boom is by no means over

2. Limited upside for jackups

3. Midwater fleet now stable

4. Deepwater fleet has short-term issues


We’re only half way through the building boom

Offshore Fleet SizeDelivered units*

0

100

200

300

400

500

600

700

800

900

1000

1985 1995 2005 2010 (Aug) 2013**

+16%-14% +6%

+15% 919

755

652 688

797

*Jackups, semisubmersibles, drillships, arctic rigs, drill barges, tender-assists and submersibles

** Assumes no attrition


Drilling is no longer a US dominated business

Ownership of Jackups, Semis and Drillships

405 350 423

194

169 136 148

519

68 72 83 114

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1985 1995 2005 2013*

Shar

e of

Fle

et

National Owned/Owner OperatorNon-US OwnedUS Owned

* Assumes all rigs are built as planned and no attrition


Premium jackups finding a home internationally…..

International* Jackup Utilization

50

60

70

80

90

100

Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010

Con

trac

ted

Util

izat

ion

(%)

Premium Jackups (301'+)

Non-Premium Jackups(<301')

* Worldwide except the US Gulf of Mexico


…but no sign yet of a real uptick in day rates…

Jackup Day Rates

$0

$50,000

$100,000

$150,000

$200,000

Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010

New

Fix

ture

day

Rat

es (U

SD/d

ay)

Premium Jackups (301'+)

Standard Jackups(300')


…and almost 120 jackups are idle today

Worldwide Jackup FleetAugust 2010

Under construction, 39

Drilling, 303

Hot stacked, 26Warm stacked, 24

Cold stacked, 68

Yard, 23

Other, 20

On order, 13


The midwater market seems to have stabilised

Midwater Rigs*

0

10

20

30

40

50

60

70

80

90

100

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

Rig

s un

der c

ontr

act

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

Day R

ates (USD

)

Rigs Under Contract

New Fixture Day Rates

*Rigs with rated water depths up to 3,000ft


Even before the Deepwater Horizon accident there were potential problems with the deepwater and even ultra-deepwater rig markets Backlog falling New uncontracted rigs arriving Rigs coming off contract Sublets available


Backlog was falling – but slowlyDeepwater Rig* Backlog

Days of contracted backlog per competitive rig

0

200

400

600

800

1,000

1,200

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Con

trac

ted

Day

s Pe

r Rig

* Rigs with rated water depths 3,001 feet and greater Under Construction, On Order and Planned rigs are counted


20 Uncontracted ultra-deepwater newbuilds are duefor delivery in the next 2 years


…and 19 more ultra-deepwater rigs may be availableover these two years


There are a number of unfilled sublet slots


But there’s plenty of uncontracted deepwater and ultra-deepwater work out there

69 identified projects with water depths wholly or partially in excess of 5,000 feet planned to start before the end of 2011 for which no rig has yet been contracted

West Africa the leader but widely distributed around the world- West Africa - 29- Asia/Pacific – 18- Mediterranean and Middle East - 8- US Gulf – 7- South America - 6- Others – 1

These represent between 35 and 51 rig years of work


In summary:•Without significant scrapping there’s limited upside for jackup rates

•Midwater market will be pressured by deepwater rigs for some years

•Deepwater market has short-term issues but future still looks good

•One last observation:


The key is that the world needs more offshore oil

Worldwide Discoveries and ConsumptionOil and Gas - 2005 to 2009

0

10,000

20,000

30,000

40,000

50,000

2005 2006 2007 2008 2009

Mill

ion

BO

E

OnshoreShelf (0-600 ft)Deepwater (>600 ft)Consumption

Sources: Discoveries IHS, Consumption BP

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