Aramco's Rig Suspensions: Shaping the future of the global jackup market?

Summary

In May's edition of the Estrian Rig webinar series, Matthew Donovan, Head of the Estrian Rig Market Research Team, discusses the impact of Saudi Aramco's rig suspensions on the global jackup market. With 22 jackups suspended for up to 12 months, the presentation explores supply and demand trends, regional market impacts, and day rate forecasts. Donovan highlights potential shifts in rig utilization and the possibility of rigs securing work in other regions like Southeast Asia and West Africa. The webinar anticipates a short-term blip in market utilization and day rates, with a return to normalcy by 2025.

Takeaways

• 📈 Global Jackup Supply Overview: There are 499 jackup units worldwide, with 72% currently drilling or contracted. The Middle East has the largest fleet, followed by the Far East and Southeast Asia.
• 📉 Recent Trends: Utilization rates have been increasing, but there has been a slight dip in active rigs and competitive utilization in Saudi Arabia and the UAE due to contract suspensions.
• 🛢️ Impact of Aramco's Decision: Aramco received a directive to maintain its crude oil production at 12 million barrels per day, reversing a previous plan to increase to 13 million barrels per day.
• 🔄 Aramco's Rig Strategy: Aramco plans to reduce offshore oil rigs and increase gas project rigs, aiming to maintain over 300 rigs in total, shifting some towards natural gas projects.
• 🚫 Contract Suspensions: Aramco has issued contract suspensions for up to 12 months on 22 jackup rigs, affecting several drilling contractors.
• 🔄 Rig Reallocation: Rig owners are marketing the suspended jackups globally, with some already securing long-term contracts in other regions.
• 🌐 Regional Challenges: Jackups moving to new regions may face challenges such as regulations, technical requirements, and age of the unit, which might require modifications for compliance.
• 📊 Market Forecast: Global jackup demand is expected to pick up by 2025, with West Africa, India, and Southeast Asia expected to absorb much of the excess supply.
• 💰 Day Rate Forecast: Near-term day rates are expected to flatten due to increased availability and market uncertainty, but should begin to rise again by 2025 due to strong utilization and limited supply.
• 🌍 Regional Demand: Southeast Asia and India are highlighted as regions with potential for increased jackup demand, with several long-term requirements and attractive markets.
• 🛠️ Maintenance and Repair: Some drilling contractors intend to use the suspension time for maintenance and repair of their rigs.

Q & A

What is the current global jackup supply status?

As of the presentation, there are 499 jackup units globally, with 72% of them actively drilling or contracted.

Which region has the largest number of jackup units?

The Middle East has the largest number of jackup units, with nearly 200 units, followed by the Far East and Southeast Asia.

How has the jackup market utilization been trending in recent years?

Utilization has been trending generally upwards, with increased demand in the Middle East boosting global utilization as excess capacity from other markets moved there.

What impact did Saudi Aramco's directive have on rig contracts in Saudi Arabia?

Saudi Aramco received a directive to maintain its maximum sustainable crude oil production at 12 million barrels per day, leading to adjustments in its rig fleet and contract suspensions.

How many jackup rigs are currently under contract with Saudi Aramco, and what changes are expected?

Saudi Aramco currently has around 75 jackups under contract, with plans to reduce the number of offshore rigs for oil projects while increasing rigs for gas projects.

What was the total number of jackups known to be affected by contract suspensions?

A total of 22 jackups are known to be affected by contract suspensions.

How are the suspended rigs being handled in terms of contract terms?

The suspended rigs have their contract backlog preserved by adding the suspension time back to the contract as an extension once they restart work.

What challenges might drilling contractors face when trying to market their rigs outside of Saudi Arabia?

Challenges include country regulations, technical requirements, and the age of the drilling unit. Some rigs may require modifications or upgrades to comply with local regulations and operating conditions.

How many of the suspended rigs are likely to be competitive in the international market?

Around 15 of the 22 suspended rigs are likely to be competitive in the international market.

What is the current forecast for global jackup demand and utilization by 2025?

Global demand and utilization for jackups are expected to remain high by 2025, with demand in West Africa, India, and Southeast Asia expected to absorb much of the additional excess supply.

What is the expected impact of the suspensions on global jackup day rates in the near term?

Near-term flattening of day rates is expected due to the unexpected boost in availability and market uncertainty as contractors work to secure additional contracts.

How might the suspensions affect the North Sea market?

The North Sea market is unlikely to be significantly affected as it requires harsh environment jackups, which are different from the rigs released by Saudi Aramco.

What is the potential impact of the suspensions on drilling contractors' willingness to work with Saudi Aramco in the future?

While it's too early to tell, it's unlikely that contractors will avoid working with Saudi Aramco entirely due to its significant market share. Instead, there may be an impetus for companies to diversify their business and expand globally.