Page 6 - EurOil Week 35

EurOil COMMENTARY EurOil

Tide turning for UK rig market

Rig scarcity could see operators having to alter their drilling plans next year

UK “THE tide is beginning to turn” for the UK in UK and Norwegian waters between the first
rig market and operators may struggle to find and third quarters of next year. Tenders have
WHAT: semi-submersibles for planned work in 2021, already been opened for some of this work.
The market for semi- Oslo-based brokerage Bassoe Offshore has said. These campaigns are small, consisting of
submersibles in the UK The market for semi-submersibles in UK either one or two days with durations of up to
has been oversupplied waters has been oversupplied for years, weigh- 200 days. Few would be considered sufficient
for years but this is ing down on utilisation and day rates, Bassoe to justify reactivating cold-stacked rigs, Bassoe
changing. said in a report published on August 27. This said.
has enabled operators to drill in summer when Some rigs can be moved between UK and
WHY: conditions are most favourable and avoid win- Norwegian waters, with six units off Norway
Difficult market ter when there is a higher risk of downtime and available between the fourth quarter of 2020
conditions have led to added costs. and the third quarter of 2021. But two of these
more rigs being retired or As such, the market has grown increas- will not be free until late in the second quarter
cold-stacked. ing seasonal, with utilisation rates rising from or early third.
March-April and then starting to decline again “There is potential to see a few of these Nor-
WHAT NEXT: around September-October. The benchmark day wegian units move to the UK for work, but most
Operators may have rates for semi-submersibles is around $140,000- are unlikely to do so and availability would still
to alter their drilling 160,000 – only just enough to cover costs and be limited even if they do,” Bassoe said.
campaigns to obtain rigs, unsustainable for their owners. Of Norway’s 19 semi-submersibles, eight are
and this may involve However, operators seeking the vessels for cold-stacked and two of these, Deepsea Bergen
drilling in the harsher drilling campaigns next year “may be in for a bit and Transocean, are set to be scrapped.
winter months. of a surprise,” Bassoe said, as rig owners look to “In addition, it’s also rumoured that most, if
reduce their sizes of their active fleets. not all, of the rest of the cold-stacked units will
“The global coronavirus [COVID-19] pan- also head for permanent retiring shortly,” Bas-
demic and oil price shock have added additional soe said. “This is a stark reminder that in today’s
problems to the already distraught market and market, once a rig moves to cold stack it’s almost
therefore drillers with rigs in the region – some guaranteed that it won’t return to work.”
of which are going through Chapter 11 pro- “Unless operators are willing to make it worth
ceedings – have been making drastic decisions, their while, rig contractors will not be able to
which will have a lasting effect on the availability reactivate rigs,” it continued. “In the current
of such units in the future,” the brokerage said. environment where everyone is trying to save
Some owners are selling their vessels for recy- money, it is unlikely that day rates will skyrocket
cling or conversion, while others are cold-stack- enough to be able to cover the cost of a reactiva-
ing them. According to Bassoe, six UK and tion, which is usually at least tens of millions of
Norwegian semi-submersibles have been dollars.”
removed for recycling or conversion since 2018, The lack of rig availability may mean oper-
and the scrapping of additional units is expected ators have to rethink the timing of their cam-
to be announced very soon. paigns. This might involve drilling during the
“Drillers have been weighing up the costs harsher months of the year to procure a rig
associated with maintaining, reactivating and/ slot.
or operating an asset and if this outweighs the “Rig-share campaigns could be a potential
cash flow potential, it will likely be under con- solution by tying together a few of the short-
sideration for sale,” Bassoe said. term campaigns and utilising one rig; however,
The number of rigs in the UK fleet has fallen these sorts of programmes have been relatively
to 11, of which three are idle but cold-stacked. uncommon in the past due to the complexity in
Cold-stacking is less costly than hot-stacking but organising such a deal,” Bassoe said.
means vessels cannot be quickly re-deployed for The brokerage warned that these changes in
work. the market cannot be counteracted easily.
“Due to the high costs associated with reac- “There is not a stack of North Sea-capable
tivating a cold-stacked semi-sub, these drillers newbuilds sitting dormant in shipyards await-
would only consider putting their units back to ing delivery,” it said. “This will be a permanent
work for a long-term campaign,” Bassoe said. or at least a long-term shift in the segment which
Five units are available for the UK market in could be further exacerbated, with more units
2021, but one of them has only very limited avail- cold stacked or scrapped, if operators do not
ability. This poses a problem, seeing as there are find a way to proceed with plans in the coming
between 10 and 12 drilling campaigns planned year.” ™

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