By Ian Craven
Apart from the occasional news snippet about rig owners coming to an agreement with Chinese shipyards on delaying deliveries of rigs under construction at Chinese shipyards there has been very little information concerning the fate of the sixty (60) jackups on order there, not to mention also the harsh environment semis, mid water drillships and tender rigs many of which should have been delivered by now.
More especially the thirty-nine (39) pure speculative jackups appear to have disappeared below the radar in recent months, many of which have been completed and are sitting idle awaiting their destiny while owners are unable to come up with the financing to facilitate the back-loaded payments needed to be made before they can take delivery. Not that the drilling market needs them to appear right now as over supply remains the single most important issue holding back a recovery in the jackup market. Too few jobs too many rigs.
But recently, after a prolonged period of silence, there has been some perceptible movement within China and reading between the lines some of the news can be seen as a warning to the international drilling market.
There are whispers that some out of work drilling management personnel have been invited to meet “rig owners” in China to discuss forming a new drilling company. Word on the street is that considerable cultural differences are the greatest obstacle to any such enterprise and nothing positive has yet traspired. It is also known that at least one international driller is in the process of offering a speculative GustoMSC CJ-46 jackup to Shell in Brunei for their ongoing tender. This is likely one of the two units ordered by CIMC Capital at CMHI’s yard.
What is more threatening though is CIMC subsidiary Bluewhale Drilling, which recently took over management of the two Frigstad HE UDW semis (Shekou and Kristiansund) under construction at CIMC Raffles, is now said to be expanding its fleet to include the other drilling rigs in their yard that are under construction but have been abandoned by their owners.
These include three North Sea harsh environment semis, Beacon Atlantic, Beacon Pacific and North Dragon as well as three F&G JU2000 jackups, Coastal Contracts 4001 (ordered by Coastal Contracts Malaysia), Phoenix and Cerebus (ordered by Top Ships / Central Shipping Monaco) plus they are likely to add the two speculative F&G Super M2 jackups that CIMC have themselves been building since 2014 and have failed to find buyers. The million dollar question of course is where Bluewhale is going to find work for these rigs. COSL has the China market well covered so it would seem their best course of action is hit the international market.
With discussions ongoing between the various primary shipyards in China, said to include CIMC, ZPMC, COSCO and COSCO Quidong, SWS, CMHI and DSIC, to band together and form an alliance to share rig building resources, to be named the China Offshore Deepsea Industry Alliance (CODIA), it is quite feasible than an entity like Bluewhale Drilling could end up managing a very large fleet of stranded jackups that includes those under construction and unwanted at all the other six shipyards. Between them all they have forty-eight (48) jackups in various stages of completion, most of them speculative or with owners not wishing to accept delivery. A fleet as large as this not only poses a threat to COSL within China but a threat to all drilling contractors internationally and can only add to the gross over supply in the jackup market prevalent at present.
But discussions and rumours so far concern the shipyards. Private Chinese rig owners have been conspicuous by their silence. Not so Opus Offshore however. Opus Offshore, a Reignwood company, entered the market with a blaze of glory in 2011 ordering four “Tiger” class mid water drillships, designed to fill a market niche that many considered just not there. The first, Opus Tiger 1, under construction at Shanghai shipyard, was nominally completed in 2015 and subsequently delivered to the owner. Unfortunately because of Opus’ inability to secure a ”full term DOC” for operating the rig and due to a lack of financial support from parent Reignwood, the rig was unable to participate in open contract tenders and has languished in the shipyard. It appears that Reignwood had doubts on their continued participation in the offshore construction and drilling business, hence they reduced their project team of (60) men to just six (6). Meanwhile Shanghai shipyard continues to perform minimal work on the other three rigs.
Reignwood then forced a management clear out at Opus and although the CFO later returned only to then quit a short time later when the company’s debts continued to mount and no clear plan to resolve the debt tissue was evident. Opus owes a long list of creditors that includes Songa Offshore, KeppelFELS, Shanghai Shipyard, ex OPUS Management, and a Singapore based investment group and many smaller suppliers.
The company appears to have eschewed voluntary wind-up in preference to waiting for creditors to force a compulsory liquidation. This has now been duly provided by Reignwood themselves who, at the end of December, brought a winding up motion to the Supreme Court of Bermuda to enforce liquidation which has led to a lot of unhappy creditors. Subsequently OPUS have closed their Singapore office and released all staff. Reignwood are looking at up to $300m of debts so time will tell if they settle or run from their obligations. A court hearing, on Friday 20th January, duly appointed a liquidator.
One bone fide drilling company hit by collateral damage has been the joint venture formed between Songa Offshore and Opus Offshore, namely Songa-Opus Offshore Drilling, which was set up in August 2014 to manage the two mid water semis Songa Mercur and Songa Venus as well as the four new drillships. The two semis had been acquired by Opus from Songa Offshore a few months earlier. Opus has defaulted on paying the JV its management fees and other costs incurred by the JV on their behalf resulting in the likely winding up of the joint venture and has led to the cold stacking and uncertain future for both semis which are stacked at KeppelFELS yard in Singapore. KeppelFELS may end up holding the baby.
One would expect that China’s COSL, who enjoys domination of the China drilling market and is well placed internationally in the North Sea, Middle East, South East Asia and Mexico, must be keeping a close eye on the possibility of a potential rival of equal or larger size emerging in China. Certainly COSL have been unusually inventive recently having introduced the concept of “vendor financed” contracts in West Africa with Sirius in Nigeria and Pura Vida in Gabon and have formed a collaboration agreement with UK’s Marginal Field Development Company (MFDevCo) offering a “one stop shop” for drilling and other related services on a deferred payment basis.
Through these deals COSL provides the drilling rig with the majority cost of any drilling campaign funded by themselves in exchange for any potential royalties that accrue from any fields discovered and which then go into production. Something to be said for being part of China Inc. but hardly something you can compete with without similar political and financial backing.
So is this the beginning of a Long March to world domination of the drilling market? Only time will tell. SOURCE: OilPro
Comment by the Heavy Lift Specialist:
It seems there are a large number of new drillrigs under construction, which owners all like to leave at the yard as there is no work for them. Why is there no work for them?? Because the operational cost for drilling an offshore well is too expensive to be justified by the present price of Oil/barrel.
It clearly needs a new approach: Build the New Generation of drillrigs based on the MPT (Multi Purpose Tower) invented by Huisman Equipment in the Nethrelands and cut operational expenses for drilling an offshore well by at least 30% as has been proven during the past 4 years with the Bully 1 and 2 of Shell and The Globetrotter II and II of Noble Drilling
Who of the owners will be the first to invest in this well proven technology, which outperforms all previouys drill rigs??