Rig rentals hit by oil price drop off

Global offshore rig use is at about 80 per cent.

Daily rates for hiring shallow-water drilling rigs in the Gulf and elsewhere have fallen to half the peak levels reached in September 2008, and are unlikely to recover much this year. More than 18 months after crude hit the record peak of US$147 a barrel on July 11 2008, difficult conditions persist throughout the international offshore oil drilling market, said David Williams, the chief executive of the international drilling contractor Noble.

"The whole global market is challenged. We don't have all our rigs working right now and our rates have come down significantly," Mr Williams said on the sidelines of a conference in Dubai. Worldwide, "day rates" for "jack-up rigs", which operate in shallow water, have dropped by as much as 50 per cent. Day rates have also fallen between 15 and 20 per cent for the floating platforms used to drill for oil and gas in deeper water.

In 2008, there was a worldwide shortage of deep-water rigs, which can cost up to US$1 billion (Dh3.67bn) each to build and as much as $500,000 a day to hire. That shortage accounts for the smaller drop in prices than shallow-water rig rates. Noble has been expanding its international deepwater drilling business for the past decade, responding to a global trend in the oil industry to explore more remote and challenging areas.

The drilling firm has fostered close relationships with national and international oil producers that have made significant deepwater discoveries. Its top clients include Royal Dutch Shell, ExxonMobil and the Brazilian and Mexican national oil companies Petrobras and Pemex. "We continue to move towards deep water," Mr Williams said. "We're going to walk softly and carry a big chequebook. We expect to keep growing."

But Noble is not planning to abandon its "complementary" shallow-water drilling business, which in the 1990s was its operational mainstay. "We like the jack-up business. It's a very simple business," Mr Williams told the Dubai conference. Noble's Gulf operations were "certainly sustainable", he said on the sidelines. "It's a good business, very stable long-term. We see rising demand." Noble has been working in the Gulf for 15 years and has 14 of its 43 jack-up rigs stationed there. But three of those are idle.

The company also has 17 deepwater and two submersible rigs, for a total fleet of 62 drilling rigs. Global offshore rig use stands at about 80 per cent, Mr Williams estimated. The company has previously drilled gas wells off Qatar's coast for RasGas, the liquefied natural gas joint venture between Qatar Petroleum and ExxonMobil. It is among the bidders for major contracts to drill oil and gas wells off the Gulf coast of Saudi Arabia for the national oil company Saudi Aramco, Mr Williams said.

After the completion last year of a record 1.5 million barrel per day (bpd) expansion of the kingdom's oil production capacity to about 12.5 million bpd, Aramco is preparing to start work on two big Gulf projects it had earlier deferred: the development of the Karan gasfield and the Manifa oilfield, containing large deposits of heavy oil. "We expect, because costs are coming down and new rigs are working more efficiently, that utilisation will pick up," Mr Williams said. "Eventually that will translate into better day rates, although maybe not this year."

But future profits for deepwater drilling contractors are by no means assured as a lot of the expensive rigs are still being built in response to the earlier shortage. That could cause overcapacity in coming years. "Our plans will depend on what happens in the next 18 months," Mr Williams said. [e-mail]