High-specification jackups and ultra-deepwater floaters are seeing day rates skyrocket and utilization is approaching 100% in the post-Macondo offshore drilling world.

"Over the last six years, the definition of premium has changed. The jackup rates of new rigs exceed the old rigs by $50,000 per day," said Paul Bragg, chairman and chief executive officer, Vantage Drilling Co.

"Day rates for deepwater rigs three months ago were around $470,000 to $500,000. Rates went sraight through $500,000. We'll see rates got through $550,000 per day in the next six in the months in the deepwater market," he added.

Atwood Oceanics and Rowan Cos. Inc. agree.

"Customers prefer newer and bigger rigs with greater capabilities and efficiencies, and better safety profiles," noted Rob Saltiel, Atwood's president and cheif executive officer (CEO).

Matt Ralls, president and CEO, Rowan Cos., pointed out that about 67% of the jackup fleet is older than 25 years. At an average of 16 years, "we have one of the youngest fleets in the industry. Post-Macondo, that’s become more important."

The three drilling contractors were making company presentations at the Jefferies 2011 Global Energy Conference on Nov. 30 in Houston.

"Higher spec units have done better in terms of moving day rates higher," he explained. "We define high-spec rigs as rigs with two-million-pound hookloads. High-end jackups are rated for 350-ft or deeper water depths or have heavier drilling packages."

All three companies were focused on the newest drilling rigs. Vantage has four of what it calls ultra-premium jackups and one ultra-deepwater drillship in operation, and one ultra-deepwater drillship under construction. A second ultra-deepwater drillship is under construction. Atwood has four ultra-deepwater floaters and four high-spec jackups. When it's newest jackup is delivered in mid-December, Rowan will have 18 high-spec, cantilever jackups and three ultra-deepwater drillships under construction.

Bragg explained that the newer rigs can tackle more complex and challenging operations, which is what the customers want.

"We have a high-profile project to Total in Malaysia. It is high-pressure, high-temperature (HPHT) work for our Topaz jackup. It is an ultra-high temperature well in Malaysia. It involves special equipment manufactured to go on our rig at an operator cost of $18 million. It will be a feather in our cap for operations credentials going forward," he continued.

"Customers are demanding modern rigs. We've had not problem getting work. Our jackups are contracted for virtually all of 2012," he emphasized.

In the deepwater market, almost all the of the rigs for 7,000-ft water depths and deeper are are contracted. Only a handful of these rigs will become available in the next two years, Bragg noted.

For example, Vantage's two drillships are under long-term contracts. The Platinum just completed drilling four wells offshore India under a five-year contract with ONGC. Dragonquest, in which the company is acquiring a one-third interest, has an eight-year contract with a day rate of $550,000 for Petrobras in the Gulf of Mexico. The vessel's first well will be in 9,000 ft of water.

Atwood is focused on expanding and renewing its rig fleet with an emphasis on high-spec jackups and floaters. Ultra-deepwater floaters will remain its primary investment focus.

It's next semisubmersible rig to be delivered, Condor, has a contract to drill for Hess Corp. in the Gulf of Mexico for two years. Day rates have improved in the Gulf of Mexico with one Atwood rig getting $514,000 per day. Rates will continue to move up from there. There is more confidence in the Gulf of Mexico getting back to pre-Macondo levels, Saltiel said.

Deepwater exploration success is driving long-term demand. Petrobras is now tendering for ultra-deepwater drillships for work that begins in late 2013, he noted.

In the jackup market, demand is increasing as Brent crude prices remain above $100 per barrel. High-spec rig utilization is stable above 90% with modestly increasing day rates, he added.

Over the last 3-1/2 years, Rowan has added 11 new high-spec jackups, "which is where we think the market is going," Ralls stated. "We spent about $3 billion doing that. We are also committed to three new drillships that will cost about $2 billion."

What is driving the market for high-spec jackups and deepwater drillships is "that operators are drilling more difficult wells," he explained. "HPHT is getting to be a bigger and bigger market around the world. That's one of the reasons we're so interested in Southeast Asia."

He pointed to the Middle East, North Sea and Southeast Asia as being strong markets for the high-spec rigs.

"There is good demand in Mexico. However, they are looking for a class of rigs at a day rate that we are not going to pursue. They are reluctant to pay the day rates the market wants," he explained.

Both Atwood and Rowan emphasized the ages of many of the jackups in today’s fleet. The biggest boom in construction of offshore rigs occurred in the 1970s and 1980s.

"A lot of the rigs built in the 1980s are in their final days. The older, smaller units we believe are going to come out of the market," Ralls said. "Rigs that have been cold-stacked for three or four or more years won't see work again. It's expensive to bring rigs out of cold stack after two to three years."

Bragg agreed. "Almost 70% of the jackup fleet is still very old and inefficient, and most are at or approaching the end of useful lives. When you see an active order book at the shipyards, you expect that to continue. There will be more rigs needed than you currently see ordered."

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

Offshore