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Westwood Insight: Saudi Aramco Saves the Day for the Jack Up Fleet

It was not too many years ago that one of the biggest questions regarding the global jackup fleet was what to do with all the newer, long-idled units and stranded newbuilds.

The latter were well past their scheduled delivery dates and simply waiting on the market to improve. Many of the other idle units were not old, but were, nevertheless, out of work since rig demand was not high enough to put any substantial number to work. However, thanks to Saudi Aramco, the excess supply is becoming less of an issue.

At the time of writing, there have been 26 new jackup contract awards made by the operator since March, with another five expected within the next month. All are for multi-year, contract terms ranging from 3-5 years and with 1-2-year options on top of that. When all the dust settles from this contracting round, Saudi Aramco will have 78 jackups under contract. However, the operator is expected to tender for another 10 units, although the timing of that tender is not yet clear. Should all 10 jackups be added, it will push the number of contracted units for Saudi Aramco to 88, right up against its reported goal of having 90 jackups working by the end of 2024. This would also imply that all existing contracts will be extended, or additional tenders should any older units be released.

A look at the rigs contracted (or to be) from the current tender shows that five of the 31 rigs were stranded newbuilds that have either been purchased or bareboat chartered from their respective build yards. Of the remaining 26, 16 were long-idled or cold stacked units, with most sitting longer than a year. The remaining 10 units are either currently working or have only been idle for only a few months.

Advanced Energy Services (ADES) has been the big winner so far in this exercise. The rig owner will supply 17 of the 31 rigs, with all but one being either purchased or chartered units. As a result of its purchase spree, the company will now manage 32 jackups, behind only China Oilfield Services Ltd (COSL), but nudging it past the likes of Shelf Drilling, Borr Drilling and Valaris. In addition to the rigs purchased for the Saudi Aramco work, it has also acquired other units that are or will be deployed in Qatar and India.

Other Saudi Aramco contract winners will account for either two or three rigs, including Arabian Drilling (2), Seadrill (3), COSL (3), Saipem (2), Valaris (2) and Borr Drilling (2). Dayrates for the new contracts are between $78,000 to $98,000 and contain additional mobilization fees that range from as little as $15 million to as much as $35 million. Since the onset of these contract awards, the average leading edge dayrate in the region has increased by around $10,000 from just over $83,500 to around $93,500.

Ultimately, 21 of the 31 jackups will be mobilized to Saudi Arabia from other regions, which will add significantly to the existing 147-rig population in the area. However, with many of these rigs needing to undergo some level of reactivation, shipyard space is clearly a question mark.

Lamprell recently announced it had signed a contract to take in three unnamed jackups for upgrade work in preparation for work in the Middle East. It is believed these will be the three Seadrill jackups; West Leda, West Ariel, and West Cressida. In addition, other reports indicate that Arab Shipyard & Repair Yard (ASRY) in Bahrain will take at least four jackups, and potentially two others. Drydocks World in Dubai is also expected to undertake some reactivation work, although the number of rigs going to that yard is not yet clear. Some rigs already in yards elsewhere in the world will likely have their work done at those sites.

Lastly, regarding Saudi Arabia, we should note the continuing market rumors regarding the so-called Noble Drilling/Maersk Drilling “remedy rigs” from their pending merger. This consists of five jackups in the North Sea that Noble may be required to divest to gain approval from the UK Competition and Markets Authority (CMA). Market speculation is that these five rigs will find their way into the Middle East, with ADES widely rumored as a potential landing spot. Of course, as stated, this is currently nothing more than speculation, but worth mentioning as it could impact the Middle East market even more.

Another major impact this contracting activity is having relates to personnel. It has been well documented that both operators and rig owners have struggled at times to find qualified people to work on the rigs. In contracting so many rigs so quickly, it will be interesting to see how Saudi Aramco handles this issue.

In addition to the Saudi Aramco activity, ADNOC Drilling has also made some noise in the region. The company, which announced in 2019 that it was looking to purchase as many as 10 jackups, recently signed an agreement to purchase ex-Oro Negro managed Argent 1, Argent 2, and Argent 3. All three units are currently stacked in the Bahamas and have not worked since late 2017. In November 2021, ADNOC bought the former Aban Offshore managed jackup Deep Driller 3, which was already working for parent ADNOC Offshore. In addition to the above, ADNOC has purchased three former Shelf Drilling units, giving the company seven additional jackups for its fleet. All the purchased units have begun or will shortly commence contracts for ADNOC Offshore.

Contracting activity in the Middle East has had a major impact on the number of committed jackups globally. In January 2021, 370 of 424 marketed jackups were contracted or committed for work (87%), versus 382 of 430 in May 2022 (89%). The increase in the number of units coming out of cold stack and the resulting supply increase to 430 partially offset the 12-rig rise in demand. Should the previously noted 10 additional rigs be contracted into the Middle East, marketed jackup utilization globally should eclipse 90%, a number that has rarely been seen since 2013.

By Terry Childs, Head of RigLogix,
Westwood Global Energy Group

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