A slowdown in oil-drilling projects in the Gulf and worldwide has begun to hit rig operators, threatening the growing sector of oil services companies and rig builders in the UAE. Demand for drilling rigs is expected to drop 20 per cent this year in the Middle East, according to a forecast by ODS Petrodata, an oil market research firm.
As oil prices have slumped, national oil companies in the region have suspended investments in new capacity projects, meaning fewer rigs are needed. Abdulla el Badri, the secretary general of OPEC, has said that low oil prices delayed 35 capacity expansion projects in the group's member countries. "This is the lowest jack-up rig utilisation levels we've seen in the last 10 years," said Rina Samsudin, a senior rig analyst for ODS. "A lot of companies - including Saudi Aramco, the region's biggest user of jack-up rigs - are deferring exploration-development projects. We've seen projects put on hold, tenders cancelled, early terminations of rig contracts and oil companies deciding not to extend contracts."
Jack-ups are offshore rigs that can lower legs on to the seabed when floating above a drilling site. They are used extensively in the shallow waters of the Gulf. ODS counted 16 rigs without contract in the Middle East on March 27, up from nine a year earlier. Day rates to rent a rig have also plunged worldwide, Dr Samsudin said. The outlook for the sector remained dim in the medium-term, she said.
"We believe if oil prices remain at current levels, the situation in the Middle East will continue to deteriorate for rig owners and drilling contractors. The idle rig count is expected to rise over the course of the year." High oil prices, and an ensuing boom in exploration and drilling, encouraged dozens of new firms to enter the rig market over the past three years. The boom spread to firms in the Emirates, some of which saw their first contracts to build rigs for international oil companies, intended for destinations as far away as South America and Africa.
Rig builders in the UAE have already begun to feel the effects of worsening market conditions. The Gulf Piping Company (GPC), which fabricates rigs at its yard in Musaffah, learnt in January that it would not be building a fourth semi-submersible drilling rig for Petrobras, the Brazilian oil company, because the firm said it lacked sufficient financing. GPC already had assembled three of the rigs, deepwater drilling platforms that dwarf a jack-up in size and each have a final value of more than US$700 million (Dh2.57 billion).
"If I tell you it did not affect us I would be lying to you," said Nabil Abla, the firm's business development manager. "We were going to sign it and everything, but they put it aside." Mr Abla is now on the hunt for other projects to keep his workers busy and his fabrication yard full to capacity. "We will fill it - with cheap prices or medium prices," he said. Gulf Marine Services (GMS), a jack-up builder also located in Musaffah, has kept its focus on local maintenance projects and hopes it can duck the crisis.
GMS operates a fleet of five jack-up rigs in the Gulf that it assembled at its shipyard at the edge of the capital. The company will begin construction on its sixth and seventh jack-ups this summer, when the hulls arrive from a shipyard in China. Work on the two projects would keep the company busy until October next year, said AJCobban, the firm's technical manager. "With the two new barges, it's actually increasing the business," he said.
Mr Cobban said demand for the company's services remained strong, partly because of its focus on maintenance of existing wells rather than new drilling projects, and partly because its jack-up rigs and barges cost less to rent than full operating rigs. "It's a good concept and it's a good market," he said. The oil industry is a cyclical business, and executives say they are used to struggling to stay afloat.
If rig companies could make it through the current downturn, there was little doubt they would supply a boom market in the long run, as oil would remain a primary energy source for decades, Dr Samsudin said. cstanton@thenational.ae
