Rig day-rates may be about to peak as drilling contractors hit resistance from increasingly wary oil companies.
Energy understands that Conoco-Phillips backed off signing up to a high-specification deepwater hire at $690,000-700,000 per day, arguing that the economics simply did not stack up.
Furthermore, at least one US super-major has apparently signalled unwillingness to signing up to three-four year deals.
Specialist exploration and production outfits are finding themselves held over a barrel by certain contractors demanding a $200million signature bond.
And that’s not all. It seems that the oil industry equivalent of gazumping is starting to happen, with drilling contractors playing potential hirers off against one another. Indeed, this is a topic that AGR will be raising at the Offshore Drilling Rig Market Conference in London on September 23-24.
The latest ODS-Petrodata market report is showing strong demand in every geographic sector and every market segment, at least for the next three or four years, and there’s a big jump in demand in 2009.
“Everyone’s aware that there’s nothing substantial available in 2008 anyway, so a lot of plans have been deferred into 2009,” AGR well management vice-president Ian Burdis told Energy.
“And for the deepwater stuff there’s massive demand.”
Burdis, who will be chairing the conference, said that, while Tullow Oil set a new record in February, 2008, by signing up the Eirik Raude on a three-year term at $637,000 per day, that was basically for development drilling on the Jubilee project.
He argued that contractors should consider differential rates, with exploration work costing less than development activities. He suggested, too, that cracks might be appearing in the market, as some oil companies had turned down day-rate deals.
“One is looking at contracting units a long way in advance, and the way drilling contractors are at the moment, if you are not a major then they are demanding a letter of credit,” said Burdis.
“The difficulty for some of the smaller companies … and there are a lot working in West Africa … is how are they going to get a letter of credit for $200million, say, today for five years out?
“The banks won’t do it. If they can’t do it then what can the companies do in the meantime, because that’s effectively all their cash frozen up? That’s what is hindering a lot of the fragmented demand from aggregating together and creating a programme approach such as we operate in the North Sea.
“I think the drilling contractors are being unnecessarily avaricious. In a lot of this market, particularly among smaller African nations, the licensing authorities … the governments … are getting very frustrated. They don’t necessarily understand the reasons why the companies they have given licences to aren’t actually doing anything.
Burdis added: “Such companies are finding it hard to get extensions on their licences. They have wells to drill, the money to pay for them and the desire to do it, but trying to get hold of actual rig capacity is very difficult.”
Speaking about AGR’s own experience, Burdis said: “We have been in negotiations with three different contractors for deepwater rigs in West Africa and the term is continually increasing … started with a year required, then two years, now it’s three.
“We were very close to contracting the Eirik Raude when Tullow took it. We were very close to contracting the Pride South Pacific, but Murphy took that.
“We’re moving on to other units.
“As for rates, we are not even getting firm offers from contractors these days.
“It’s $625,000 today, but they’re now saying that if rates go up between now and when you start the contract then they’ll raise the price.
“I think there’s going to be a lot of friction. There always is between operators and drilling contractors, and the latter will not be overly sympathetic.
“They are still brandishing the, ‘well, we had 10 years of getting kicked by the oil companies’, and you can’t really argue with that – it’s true.
“For them, this is payback time.”