Marine plays a winning hand
Upstream, current issue (February 16-22)
By Robert Smith
It is commonplace to describe a company as “well-positioned for growth”. But it is difficult to imagine a company better fitting that description than Marine Drilling Companies.
With 14 of its 16 shallow-water mat and independent leg jack-ups in the Gulf of Mexico, the company is reaping the benefits of the now familiar natural gas drilling frenzy, currently commanding dayrates at or near 1997 highs.
"Rates for new contracts are moving above $40,000 per day compared with $43,000 to $45,000 in late 1997," according to oil service analyst Mark Urness at Salomon Smith Barney. "We expect demand for commodity jack-ups will outstrip supply, causing prices potentially to move above $50,000 by the end of the year."
Thirteen of 14 rigs, already at 98% utilisation in the fourth quarter of 2000, roll off their current contracts within the next 90 days, offering plenty of opportu-nities for rigs to renew at higher spot rates in 2001, notes analyst Joe Agular at Johnson Rice. That’s a good position to be in, but it gets better.
"We expect rig economics in this (GoM) market to improve as international markets accelerate their recovery in 2001," says Robert Trace at Hibernia South-coast Capital.
Trace says he has heard of one operator seeking a five-jack- up tender in the North Sea as well as three or four additional incremental jack-up programmes in the area.
"With more than a dozen jack-ups mobilised from the North Sea to other markets over the last 18 months, we believe (North Sea) operators will find themselves in the midst of an excess demand for jack-ups and then begin to panic," says Trace.
At that point, he expects jack-ups will mobilise out of the US Gulf to the North Sea, "especially since the West Africa market is sold out under rising demand". The first to leave will most likely be heavy-duty/harsh-environment rigs like Rowan’s Gorillas, which can receive higher rates in the North Sea.
"This will reduce the number of premium jack-ups being underutilised in the shallow waters of the US Gulf, relieving any potential overhang on shal-low- water jack-up dayrates," Trace concludes. And for Marine that means market position. Under the cir-cumstances, many a rig operator might be thinking about adding capacity to cash in on the market.
But not Marine Drilling. President and chief executive Jan Rask is adamant that there won’t be any newbuilding with-out a firm contract. What is more, he urges his peers to have patience, building only to replace existing equipment, not to add capacity.
"The industry ordered some 50 new floaters between 1996 and 1998," says Rask. "As the last of them comes on line this year we will have 210 to 212 floaters available. But historically we haven’t seen sustained demand for more than about 190. We could be look-ing at a structural oversupply of 15 to 20 floaters."
The same thing won’t happen to the jack-up market if he can help it. But, if and when there is to be new-building, Rask believes it will be of premium, heavy -duty/harsh-environment jack-ups as well as mat-sup-ported jack-ups that afford cer-tain specific advantages when working near production platfoms and under certain bottom conditions.
Marine Drilling does have a couple of entries in the floater market. The Marine 500, a 5000-feet deep-water semisub working for Chevron in Australia, is under contract until the end of this year.
It could be released early on the basis of a prearranged subsidy agreement under which Chevron would pay Marine $95,890 per day against a contract rate of $120,000. Any amount over $30,000 per day that Marine could get for the rig would reduce the subsidy.
The Marine 700 is a 7500-feet ultra deep-water semi under con-tract to ExxonMobil in the US Gulf through 2004. The dayrate is the prevailing market rate with a floor of $130,000 and a ceiling of $165,000 per day. ExxonMobil is currently paying $141,800. A rate adjustment, presently the subject of arbitration, is likely to reflect an increase given the improve-ment in the ultra deep-water market.
Current position notwith-standing, the question inevitably arises: can a rig outfit with 16 to 18 units continue to go it alone in an industry increasingly domi-nated by giants on both sides of the table? "More consolidation is needed, particularly in the jack-up segment," says Rask. "The floaters are becoming well con-solidated in the hands of a few operators such as Transocean Sedco Forex, now merged with R&B Falcon. Diamond has also been a consolidator, beginning with Arethusa and Odeco."
For the moment, however, Rask is willing to play the hand of commodity jack-ups in the US Gulf and deep-water floaters. "Nothing in between," he says. |
