No time to die – How will offshore drilling rig values recover facing an energy crisis?

Summary

The webinar discusses the offshore rig market and rig valuations, highlighting the oversupply from 2005 to 2014 and the impact of the COVID-19 pandemic on the industry. It explores the energy transition's effect on demand and the potential for value appreciation in the drilling rig market. The speakers also delve into the different types of buyers and sellers in the rig market and the factors influencing rig values, including technical aspects and market conditions. The presentation concludes with an outlook on the recovery of rig values and the challenges and opportunities within the industry.

Takeaways

• 📈 The offshore rig market experienced an oversupply between 2005 and 2014, growing from 600 to over 900 rigs.
• 📉 The COVID-19 pandemic in early 2020 further weakened the rig market, causing utilization rates to drop and rig values to plummet.
• 🔄 The energy transition is still in its growth phase and cannot yet replace fossil fuels, with oil demand expected to surpass pre-pandemic levels by 2022.
• 💰 Oil prices have been strong, around the $85 level, which is the highest since October 2018.
• 🚀 The competitive rig fleet has been reduced through scrapping and conversion, now standing at 587 rigs, similar to the size in 2005.
• 🛠️ Rig values are determined by market factors such as oil prices, rig supply and demand, utilization rates, and recent sales.
• 🔄 The buyer landscape consists of strategic buyers, opportunistic buyers, and those interested in conversion or scrap, each with different motivations and resources.
• 🔄 The seller landscape includes strategic sellers, distressed sellers, and stranded sellers, with deals varying based on the seller's situation.
• 🌐 SGN provides a digital platform for rig values and analytics, covering the status of all rigs and offering forecasts, as well as a product for individual CO2 emissions from the rig fleet.
• 📈 Looking ahead, the forecast for rig values suggests a potential for substantial appreciation, especially for modern drill ships and premium jack-ups, as utilization rates increase.

Q & A

What was the impact of the COVID-19 pandemic on the offshore rig market in early 2020?

The COVID-19 pandemic led to a significant downturn in the offshore rig market in early 2020. Rig utilization rates dropped from 78% to 64% between February and June, and the number of big contract rigs fell from 460 to 378. This resulted in a substantial devaluation of rig assets, with many becoming worth only their scrap value, leading to offshore drillers filing for bankruptcy under Chapter 11.

How has the offshore rig fleet changed in size between 2005 and 2014?

Between 2005 and 2014, the offshore rig fleet grew from approximately 600 rigs to just over 900 rigs. This expansion led to an oversupply in the market.

What is the role of the energy transition in the current state of the offshore rig market?

The energy transition is still in a growth phase and is not yet ready to replace fossil fuels to meet additional demand as economies grow. Despite the transition, the demand for oil is expected to surpass pre-pandemic levels by 2022 and grow beyond 100 million barrels per day by 2023.

How does the SGN Rig Values platform function?

SGN Rig Values is a digital platform that provides rig values 24/7. The values are updated twice weekly or as market events demand. The platform's basis is SGN Rig Analytics, which covers the status of all rigs in the world fleet and provides rig demand and rig supply forecasts.

What factors are considered when establishing rig values?

Rig values are established by considering macro-level factors such as oil prices and oil company spending, the rig market itself including rig supply size and the competitive fleet, utilization fixtures, day rates, and recent sales. Technical aspects like rig design and operating areas are also considered.

What has been the trend in rig values since the market peak in 2014?

Since the market peak in 2014, there has been a catastrophic reduction in rig values. Modern rigs such as seventh-generation drillships and premium jack-ups have lost about 75% of their value. The harsh environment sector has fared the best, with values dropping about 50% due to limited supply.

Who are the typical buyers in the current offshore rig market?

Typical buyers in the current market are drillers with less inventory of idle rigs and higher fleet utilization. These drillers are likely to acquire more modern rigs to take advantage of the increase in day rates and bid on new tenders.

What are the three types of sellers in the offshore rig market?

The three types of sellers are strategic sellers, which include drillers looking to right-size their fleet or exit non-core segments; distressed sellers, which occur when creditors take over companies and need to exit quickly; and stranded sellers, which are new builds controlled by yards that have become unwilling owners due to cancelled orders.

How does the retirement of older rigs affect the market dynamics?

The retirement of older rigs, particularly those that have been stacked for a long period or are pre-2005 models, reduces the supply of available rigs. This can lead to higher utilization rates and potentially higher day rates and rig values as the market adjusts to a smaller fleet size.

What are the climate risks associated with offshore drilling activities?

Climate risks in offshore drilling activities include the costs associated with reducing emissions from drilling rigs. As the world moves towards a low-carbon future, there will be increasing pressure to limit greenhouse gas emissions, which could affect the economics of offshore drilling operations.

What are the expectations for rig values and utilization rates in the coming years?

The expectations are for rig values and utilization rates to increase significantly. With a forecasted increase in demand for oil and gas, and a reduction in the competitive fleet size to levels not seen since 2005, utilization rates for all rig classes are expected to move above 80%, which historically has led to higher day rates and rig values.

Outlines

00:00

📉 Market Review and Rig Valuation

This paragraph discusses the historical context and current state of the offshore rig market, highlighting the growth of the rig fleet from 2005 to 2014 and the subsequent oversupply. It mentions the impact of the COVID-19 pandemic on the rig market, with utilization rates dropping significantly and contract counts falling. The paragraph also touches on the future outlook for rig values, considering the energy transition and the expected growth in oil demand. It introduces the speakers and their roles, setting the stage for a deeper dive into the market dynamics and valuations of offshore rigs.

05:03

🔍 Methodology and Rig Value Determination

This section delves into the methodology used to establish rig values, starting with macro-level factors such as oil prices and company spending, and moving on to specific rig market elements like fleet size, utilization rates, and day rates. It emphasizes the importance of recent sales as a value reference and discusses the principle of willing buyer and willing seller in determining values. Technical aspects like rig design and operating areas are also considered as value drivers. The paragraph introduces digital platforms that provide rig values and analytics, highlighting the role of market events in influencing these values.

10:04

💡 Buyer and Seller Dynamics

This paragraph examines the current market dynamics from the perspective of buyers and sellers. It identifies traditional large drillers as less likely to be asset buyers, focusing instead on improving fleet utilization. On the other hand, drillers with fewer idle rigs and higher fleet utilization may seek to acquire additional rigs to capitalize on increasing day rates. The buyers are categorized into three groups: strategic, opportunistic, and those interested in conversion or scrap. The paragraph also discusses the motivations and characteristics of different types of sellers, including strategic distressed, opportunistic, and stranded sellers, and how these dynamics affect rig transactions and values.

15:04

🛠 Rig Retirement and Market Fundamentals

This section discusses the rig retirement landscape, considering factors like age and stacking periods of rigs, as well as the costs associated with reactivating older rigs. It highlights the challenges of bringing older, stacked rigs back into operation due to high reactivation costs. The paragraph also presents detailed databases and systems used to analyze every rig in the world, evaluating them based on various criteria. It forecasts rig retirements and anticipates improved market conditions, suggesting a continued shrinkage in supply and potential for value appreciation in the future.

20:06

🚀 Value Appreciation and Market Outlook

The paragraph provides an outlook on the potential for value appreciation in the drilling rig market. It discusses the expected increase in day rates and rig values, particularly for modern drill ships and premium jack-ups, based on high utilization rates and demand forecasts. The potential impact of climate risk on rig values is also considered, as emissions reduction costs could affect the value of fossil fuel activities. The section concludes with a positive outlook on the market, suggesting higher utilization and day rates leading to increasing values for drilling units, while acknowledging the risks associated with oil prices and the transition to renewable energy sources.

25:07

🤝 Audience Q&A and Final Thoughts

This final paragraph is dedicated to answering audience questions and providing concluding remarks. It compares rig values to the implicit values of publicly listed drillers, discusses the potential for increases in rig values, and addresses the differences in values between various market segments. The speakers provide insights on the recovery of the rig market, noting that the competitive fleet has decreased to 2005 levels and that demand is expected to return to pre-pandemic levels. They also address the potential for recovery similar to the 2005 market boom, concluding that a new building boom is unlikely due to the energy transition and shipyard shifts. The presentation ends with a thank you to the attendees and a note that a recording will be made available for those who missed it.

Keywords

💡Offshore Rig Market

The offshore rig market refers to the economic sector focused on the operation and management of offshore drilling units, which are crucial for the exploration and extraction of oil and gas resources from underwater reserves. In the video, the market is discussed in the context of its historical growth, recent challenges due to oversupply and the COVID-19 pandemic, and future outlook in terms of rig valuations and demand.

💡Rig Valuations

Rig valuations are the process of determining the monetary worth of offshore drilling rigs, which can be influenced by factors such as the age of the rig, its operational capabilities, market demand, and the overall health of the oil and gas industry. In the context of the video, rig valuations are critical for understanding the financial health of the offshore rig market and for making informed decisions by buyers and sellers in the asset market.

💡Rig Utilization

Rig utilization refers to the percentage of time that drilling rigs are actively working compared to the total available time. High utilization rates typically indicate a busy market with strong demand for drilling services, while low rates suggest a slower market with excess supply. In the video, rig utilization is used as a key indicator of market health and is tied to the fluctuation in rig values and contracts.

💡Energy Transition

The energy transition refers to the global shift from traditional fossil fuel-based energy sources to renewable energy sources, aiming to reduce greenhouse gas emissions and combat climate change. This transition impacts various industries, including the offshore rig market, as the demand for oil and gas exploration may change over time. In the video, the energy transition is discussed in relation to its effect on the future demand for offshore drilling services and the potential gap between fossil fuel and renewable energy sources.

💡Fleet Utilization

Fleet utilization is a measure of how effectively a company's assets, in this case, drilling rigs, are being used to generate revenue. It is calculated by dividing the number of active rigs by the total number of available rigs. High fleet utilization indicates efficient use of assets and can lead to higher profitability. In the video, fleet utilization is a key factor in predicting future rig values and market conditions.

💡Day Rates

Day rates are the daily fees charged by rig owners to drilling contractors for the use of a drilling rig and its services. These rates are a significant source of revenue for rig owners and a critical cost factor for drilling contractors. In the video, day rates are discussed as an indicator of market conditions and are expected to increase with higher rig utilization and improved market fundamentals.

💡Climate Risk

Climate risk refers to the potential financial, legal, or reputational impacts on businesses due to climate change, including the transition to a low-carbon economy, physical impacts of climate change, and changes in climate policy. In the context of the video, climate risk is relevant to the offshore rig market as it may affect the cost of operations, demand for drilling services, and the need for investments in emission reduction technologies.

💡Stranded Assets

Stranded assets are resources, such as oil and gas reserves or capital equipment like drilling rigs, that have lost or are likely to lose their value due to changing market conditions or regulatory changes, such as shifts towards renewable energy. In the video, stranded assets refer to new builds controlled by yards that have not yet been deployed due to market conditions, representing potential future supply in the rig market.

💡Reactivation Costs

Reactivation costs refer to the expenses associated with bringing idle or decommissioned drilling rigs back into operational status. These costs can include maintenance, repairs, regulatory compliance, and other preparatory works necessary to ensure the rig is fit for service. In the video, reactivation costs are a critical factor in determining whether it is economically viable to redeploy certain drilling rigs.

💡Greenpack Rigs

Greenpack Rigs is a product mentioned in the video that calculates emissions from all drilling rigs in the world, providing data on individual CO2 emissions. This tool is relevant in the context of climate risk and the need for the industry to monitor and reduce its environmental impact. The product helps in assessing the climate risk associated with different drilling rigs and informs decision-making regarding rig valuation and investment.

Highlights

The offshore rig market experienced an oversupply between 2005 and 2014, with the rig fleet growing from 600 to over 900 rigs.

The COVID-19 pandemic in early 2020 exacerbated the weak rig market, causing utilization rates to drop from 78% to 64% between February and June.

Rig values plummeted to all-time lows, with many rigs being worth only their scrap value, leading to offshore drillers filing for bankruptcy under Chapter 11.

The energy transition is still in its growth phase and cannot yet replace fossil fuels to meet increased demand as economies recover.

Oil demand is expected to surpass pre-pandemic levels by 2022 and grow beyond 100 million barrels per day by 2023.

Oil prices have been around $85 per barrel, the strongest levels since October 2018.

The competitive rig fleet has been reduced by scrapping and conversion, now standing at 587 rigs, similar to the size in 2005.

There is no new rig construction, which provides more clarity in the supply overhang.

SGN's rig values platform, based on SGN rig analytics, provides rig values updated twice weekly, reflecting the status of all rigs in the world fleet and offering rig demand and forecast data.

Rig values are determined by a willing buyer and willing seller principle and do not include contract values.

Since the market peak in 2014, modern rigs have lost about 75% of their value.

The harsh environment sector has fared the best, with values dropping about 50% due to limited supply and operational limits.

Buyers in the rig market can be categorized into three groups: strategic, opportunistic, and those focused on conversion or scrap.

Sellers in the rig market can be strategic, distressed, or stranded, with each category having varying motivations and value expectations.

There is a price expectation gap between willing sellers and buyers, which can affect transaction types and values.

Improving market fundamentals are expected to draw opportunistic buyers chasing premium jack-up deals at distress prices.

The forecast for 2022 and 2023 indicates that rig utilization for all classes will move above 80%, potentially leading to higher day rates and rig values.

Climate risk is a significant factor in the fossil fuel industry, with costs to reduce emissions from drilling rigs affecting future value potentials.

The retirement of older and less competitive rigs, combined with increased demand, is expected to lead to higher utilization and value appreciation for modern drilling units.

Transcripts

good morning and good afternoon

welcome to this estrogen webinar today

we will be covering the offshore rig

market and the development in rig

valuations

with me i have erlen basser chairman of

asgen

hans huggleburgh bp rigs and green pack

rigs

and hans jacob basser one of our

offshore rig analysts

we will be starting off looking at the

past few years and fundamentals

impacting the market

then we will look closer at buyers and

sellers in the rig asset market and

finally we will discuss the current

situation and the outlook for rig values

for the next few years

over to hans hagelberg

in the period between 2005 and 2014

the offshore rig fleet has grown from

some 600 rigs to

slightly over 900 rigs by 2014

and that created

an oversupply

then to make things worse in

early 2020 the kovid pandemic

hit an already weak

rig market

with the rig utilizations going from 78

down to 64

in the short period between february and

june

uh and with big song contract dropping

from

460 down to 378

and as a result big values took a tumble

to an all-time low

with many rigs

only worth scrap

and that resulting in offshore drillers

filing for chapter 11.

as can we have the next slide

so could the fossil fuel renewable gap

mean that we're moving towards a

brighter future for the offshoring

market

the

energy transition

is still in a growth phase

and it's not ready to replace fossil

fuels to take up the additional demand

when the economies now start to grow

again

energy demand is expected to surpass

pre-pandemic

levels already by

2022 and

grow beyond 100 million barrels per day

by 2023

oil price has been around 85

level which is the strongest since

october

2018.

shale is

restructure restructured

and there is now more production

discipline

creditors has become drilling contracted

shareholders and that will also provide

more discipline in their offering

since

the peak of 2014

the

competitive fleet

has been reduced through

scrapping and conversion and it now

stands at 587

rigs

which is roughly the size of the fleet

in 2005.

there is no additional

new building

and that

creates

more clarity

in the supply overhang

so next slide please

um sgn is following offshoring values

and uh presenting them through the to

the market

through uh esgn rig values which is a

digital platform providing rig values

24 7.

the values are updated twice weekly or

otherwise as market events might demand

the basis for

rig values the rig values platform is

sgn rig analytics

which is covering the status of all rigs

in the world fleet

and is providing rig demand and rigged

forecasts

sgn also have a third product called

green packed rigs which is covering

individual

co2 emissions from

the world's

offshore rig fleet

so next slide

the methodology for establishing rig

values

[Music]

then we're looking at

things

starting with the macro level

the oil price oil company spending etc

then

we're looking at

the rig market itself and

the rig supply

size of the competitive fleet

utilization fixtures and of course day

rates

we have value references and

the most important is of course recent

sales

however that can be difficult in the

market as today's

where very few asset sales have taken

place

it's important to point out that the

values are always determined by the

willing buyer and willing seller

principal

and the values does not include

any values from any contracts it's

contract shorter three

values

then finally there are technical aspects

such as

the rig design operating areas we're

looking at the rig specification

to identify value driving factors etc

next slide please

since since the peak of the market in

2014

the value reduction has been

catastrophic

looking at modern rigs such as seven

generation drink ships and premium jack

ups they've lost about 75 percent of

their value

the class of rigs that has fared the

best is the harsh environment sector due

to

its operational

limit limits

the supply

uh

[Music]

the

the limited supply

has helped to keep

rates

at a higher level

but still

values have dropped

about fifty percent

uh next slide please

and uh with that we will move on and

talk about uh the buyers uh and the

sellers so hence jacob

hey girls

so

firstly in the current market we believe

that the traditional large drillers are

not the asset buyers as revenue growth

can be achieved within its current fleet

these companies such as velaris

transocean and board really already have

a large fleet and after years with low

demand and equalization

these companies look to bring stack rigs

back into work and improve its fleet

utilization rather than crying or

acquiring an additional rig

on the other hand we have drillers that

have less inventory of idle rigs and

higher fleet utilization

these drillers are likely to take on a

rigor 2 in order to bid on new tenders

and take advantage of the current

increase in day rates

so the buyers can be categorized into

three groups we have

optionistic and conversion or scrap

so the strategic buyers can pay more to

acquire more modern rigs and typically

finance the purchase against a long-term

contract

typical buyers as mentioned earlier are

drillers with less idler rates

but for instance saipim type airport

charger the samsung santorini which have

a purchase option and shelf drilling

which acquired the mers completer and

rented its shelf drilling enterprise

both rigs have been contracted the

samsung century will commence work with

eni in the u.s gulf of mexico

while the sheltering enterprise went

contracted to chevron for work offshore

thailand

other buyers can be companies that have

some some sort of government support

such as 80s which acquired four noble

jack ups and contract with some saudi

aramco earlier this year

the second buyer the opportunistic

buyers are industry players who look to

take advantage of the stress assets in

the market

these buyers have either their own cash

or look to raise cash quickly and buy a

rig with little to no leverage and the

transaction are generally completed

fairly quickly

the buyer looked to look to take

advantage of the low steel values which

must be favored to public equity and

acquire rigs on a discount and later

this can lead to growth opportunities

through consolidations

lastly we got the conversion scrap virus

require acquire rigs at low values to

scrap values for recycling of steel or

cost efficient conversion for other

purposes

uh typically rigs can be converted into

mobile ultra production units but also

long traditional conversion happens such

as offshore wind installation

and also landing platform platforms for

rockets like the two of the largest

embassadors acquired last year

for the scrap buyer the steel prices

drive the market rather than the oil

price and the buyers are not valid

drivers rather set the floor for greek

values

and the risks acquired are of course

permanently removed from the market

so moving on we also looked at the three

types of sellers

and we've got the strategic distressed

and the stranded sellers

for the strategic sales these are cells

done by drillers and values can vary

from high values to low or scrap values

these types typically take place when

drillers look to right size its fleet

such after an m a transaction

or when the company wants to exit a

non-core segment such as when transocean

sold its checkups report drilling

also in times such as now builders could

sell off rigs to generate cash to fund

future activities

lastly drillers sell for strategic scrap

or conversions and this typically

happened as mentioned earlier during the

riot sizing

or when it does not make economic sense

to reactivate a full stack route

when we say modern units sold for a

scrap of conversion such as for instance

a semi-general ship it tends to be

because drillers look to reduce the

supply of bricks rather than allow it to

continue with a competitor

we also have distress sales which happen

when creditors take over the company and

the prices are

lower than the strategic sales but of

course higher than scrap sets

creditors become the unwilling owner

when debt requirements are not met and

therefore they look to exit quickly and

cut the losses the new owner will look

to run processes to downsize and

restructure companies and sell of assets

however sometimes the creditors could be

willing to give some sort of an

optionality for higher asset pricing

for instance a payable charter with a

purchase option

could be an option for the accreditor

finally we got this stranded sales which

are new builds that are controlled by

the yards

in the current market

many new bills have been cancelled

which then leaves the ownership to the

arm

like the creditors the odds become the

unwilling owner

but these searches do not want to cut

the losses and self-achieve values

typically the yards have some sort of

governmental backing and cash available

and therefore can hold into the asset

for a longer period of time to wait for

a fair price

and often

while waiting for this fair price yards

often combine the strategy assets into

hold up posts

so then looking at the buyers or sellers

deal territory we can see that there is

a price expectation gap between the

willing seller and the willing buyer

on certain transactions such as scrap

and conversion the buyers and sellers

are more or less aligned

and this is also the transaction type we

see in the most of in the past few years

some transaction this year could be

is for instance the recent sale of the

semi-cell leo to bw energy for fpu

conversion and also pacific mistrial and

bora to gms for scrap

looking at other transaction types we of

course have the distressed opportunistic

strategic and stranded and the price

expectation gap between willing seller

and willing buyer is much wider here

this is also transaction we haven't we

have seen less of in the market

by looking at certain asset classes we

see that the gap

is narrowing for instance with improving

market fundamentals we believe

there could be opportunistic buyers who

would chase premium jack up deals at

distress prices

furthermore the 7th general ship price

gap is narrowing as we see in both

opportunistic and strategic

transactions for instance with deep

valley jewelry which was acquired from

dolphin earlier this year

also to narrow the gap companies acquire

ships with purchase options as mentioned

earlier sipim has the purchase option on

the samsung santorini while on the harsh

environment semi-sub we saw yesterday

that dolphin will market the two sim

sub-starting spring in nordic winter

and also secure the right to purchase

them at the latest stage

i will now move the presentation

to ireland who will talk more about

offshore week values in the current

energy crisis

thank you hans

yeah move to the next slide yeah i

suppose most of you have seen the james

bond movie

by now and we know the outcome of that

i cannot guarantee what the outcome will

be of the drilling industry other than

saying

this is not the time to die for most

rigs

though regrettably

it's time for some and that's what we

look at here

so it's been a tough market for many

years it's been a long downturn

and still about

30 of the rig supply is stacked

18

of the stacked rigs are fairly modern

between 2005 2009

why although 42 are built before 2005.

and of these 195 rigs

84 of them have been stacked for a very

long period

more than three years

and

such a long stacking period and old age

in combination

often makes the reactivation cost

prohibitive

for making or for bringing the rigs back

here with some economic sense to it

so many strategic sellers choose to

scrap

rather than invest a large amount of

money in all these rigs

and bring them back and really create

more competition

so with that backdrop we claim it's time

to consider

those

which have no time to die versus those

which do

and if you look further down on the page

and look at uh at the distribution of

stacked rigs

you'll see that jack ops

have a large percentage of old rigs

almost 50 percent of the fleet is

pre-2005

semi-submersibles are very similar

one-third of the fleet is old

well when it comes to drill ships most

of the fleet is quite new

one of the major factors for bringing

rigs back into operations is what you

need to do to satisfy the class and the

special periodic survey which all rigs

have to go through

and as you can see from the graph a very

large number of rigs i will have their

sps position expired and hence it will

be costly to bring them back

next slide please

so

in sgn we have

detailed databases and

and system to analyze

every rig in the world

and we can go in on all levels to

evaluate these rigs

according to various criteria

excuse me

and when we look at the sort of the

retirement picture uh if we apply some

criteria which are on the right side of

the page for jack obviously would be

pre-2005 it would be typically

all designs one of the signs long

stacking periods no sps

or semi submersibles typically before

2000

outside of the north cie not capable to

go back to the north sea

on favorite designs long stacking period

expired sps and for drill ships

more or less the same but

hp 2013 long stacking

and there we also look more carefully at

the reactivation cost because as drill

ships have been stacked for very long

time

the reactivation cost can be substantial

often 100 million dollars or more

next please

so looking at that analysis that you

just saw

and taking into regards that we already

seen a huge number of drilling rigs

being retired

and will continue to be retired based on

that analysis into 22 and 23 with more

than 36 weeks in 22 and 47 in 23

although some rigs will come back we

forecast improved conditions so stranded

rigs will come back into the market

but nevertheless supply will continue to

shrink and

remind you we already think that the

supply level is at almost

2005 levels i.e 15 years ago

so if you blend this with our supply

excuse me our demand forecast we have a

10 year demand forecast

but applying that demand forecast

through 23

and mixing it with retirements

we see that the fleet utilization for

all of the

three classes we look at move above

the magical 80 level

the experience from the rig market is

that as soon as you move into the 80

percent territory

you see their rates move and as you move

up through towards 100 they can move

quite dramatically

so we think that

the forecast based on utilization is a

good qualifier for estimating where

values will move

and if you look bottom left

we estimate a modern drill ship

today uh in uh asian rig values to be

about 200 million

uh looking at utilization

in

uh 23 of say 90 plus with opex of 150

000 per day we think day rates will move

from the current

280 300

marginally about 300 to 400

uh if you just pick a multiplication of

five

we see that with

the rig values of these rings could

double more than double towards 450

million

which is still under the original

replacement

level which often was

600 650

for the harsh environment semis

the more popular unit in this

uh market at least prior to the recovery

of deep water wheel ships

estimating values think

such unit today is worth around 300

they already have pretty good

utilization but when that moves into the

90 territory they have high operative

cost particularly in the north sea

darius would move from the current 300

325 even a bit more to 400 000 400 000

plus and such units would easily be

worth in the 400 million range

if you go back to well if you go down to

semi-six-gen

kind of a little bit of these sort of

the forgotten type of rig

between the shallow water jacobs and the

deep water

drill ships

we think such rig

even if

despite it being quite modern it's only

worth 100 million based on being warm or

in drilling condition

but as the utilization also is

forecasted to increase for this segment

of the market

with opex of 150k

we think their rates could move to say

250 000 maybe an inch higher than that

and quickly we see values develop into

the sort of the 180 million dollar range

so um

all of this

point towards at least the platform

towards fairly substantial

value appreciation over the years to

come

but obviously there are risks to these

values

as we know

it depends heavily on the oil price and

hence the oil company's earnings because

they need good earnings to pay for

drilling

being dependent on world economic growth

we are we are dependent on shale

oil production and discipline within

that field

and obviously

if opaque plus open the float gates yeah

something would happen to

the oil prices

and we have other factors like iran iraq

and so on but not in the near term

and then we have another factor which is

today in today's market

very important to take into

consideration

and that is the climate risk

there is definitely climate risk in

fossil activities

and it will cost money

to reduce emissions from drilling rigs

and these are factors that has to be

looked at

going forward to

say fine-tune

value potentials

other risks could of course also be as

demand of oil and gas as we move into

renewables

but also we see that

there are some funding challenges and

for for oil companies in fossils

it is not the most popular item to

finance these days

if you want to look at the

climate risk of rigs

we mentioned earlier that we have a

product called greenpack the greenpack

rigs

which

calculate emissions from all drilling

rigs in the world

so now you have heard

that the supply supplier rigs

is close to 2005 levels which is quite

remarkable i think

um and

still many rigs will be retired as we

have gone through

we do not we know that demand for oil

obviously is higher today than in 2005

and since 2014

there has been a large very large under

investment drilling for oil and gas

less than half and what it used to be in

2014 last year

and the renewables

are immature and

extended

so there is this fossil renewable gap

where

drilling comes into play we think

and we think this these conditions will

lead to higher utilization

and higher day rates

and ultimately increasing values

for those drilling units with no time to

die thank you very much

thank you erland a lot of strong

information and assessment of

opportunities there for the drilling rig

market

we do have a few few minutes left and a

few questions that have come through

from the audience so i'd just like to

pose a couple of those questions to the

three of you if we can go through and

try and answer those

um so first one was um

how do rig values compare to implicit

values of publicly listed drillers

yes i mean

big values

well you need to kind of be

in the market constantly hearing about

the bid asks

uh talking to people so that's sort of a

market function

uh implicit values are

just what you get from analyzing

a company it's stock price dividing uh

the

balance sheet uh net effects of the

balance sheet over the fleet

and and develop and and sort of divide

between the various assets

uh within what

the positive values are to find

a value for each class rig so for

example

if you look at

the various

companies

seven gen if you look at for example

diamond

rig velaris noble drill co

consider seven gen implicit values

you come to you know a very large figure

because of the depth in trans ocean so

that's like 300.

uh but for velarius noble and so on it's

about

165 170 very close to the values that we

have and it can vary a lot but you know

you have to run your own calculations

but usually when you see implicit values

increase because the stock price

increase because it's liquid

uh people look to buying steel rather

than stock if you can if you're disposed

to do that as an investor

there's a couple of questions sort of

around i'm trying to put these into into

one it's sort of um

rig values you know what when do sgn

expect to see increases

the most and the soonest which areas

i don't mind uh covering that yeah or

yeah

so

uh we think that the

modern drill ship or the 7th gen pro

ship

will probably have the most and soonest

uh appreciate appreciation

potential

because there's been a lot of the math

and utilization has been quite high

there recently particularly in

certain regions such as the u.s gulf of

mexico and south america

um

we also believe that freemium jacobs

could

expect to see a significant

increase

of these rigs are you know operating in

shallow water

and

there are cheaper drilling costs uh

we're using the jack ups so as the oil

price continues to move

uh the recovery there of the value can

happen quite uh rapidly

um

lastly i think the semi subs uh like we

mentioned it's

kind of the forgotten asset

with the exception of the horse

environment of course

and

we don't see a rapid increase in values

at least not in the near term

but as the utilization

increases for the drill ships and that

will should become less available

uh certainly the deepwater semi subs

will

be in higher demand and are more

attractive assets

and if i can add to that we

talked about the different type of

sellers

and you know there are

different numbers of rigs available in

each level so if you look at the

distressed segments

it's not an endless number of rigs for

sale there though those can be a bit

cheaper than

than the more sort of strategic side or

the stranded side

and as

those segments of the market empty out

and those rigs get sold you kind of move

up in the value chain

from the cheapest units to the most

expensive units being the

probably the stranded units with the

chinese korean

and singapore shipyards where you see

uh for example a jackpot having an

asking price of call it 80 million

versus

if you look at the stress levels

probably talking in the 30 to 40 million

so as you move through the value chain

and the supply of

bikini rigs empty out you quickly move

up to the next level

okay

um i just time for one more that we've

got several but what this has been asked

on a few different scenarios um we

mentioned that the competitive fleet is

decreased to about 2005 levels

and the demand is expected to return to

pre-pandemic levels

do essentially expect to see recovery

similar to what happened in 2005

i would say no

lots of different reasons

we don't foresee

any

really new new building taking place

um

with the

energy transition uh

the

lead time

will be such that uh it's gonna be

difficult to

have uh

paid down

on a new building taking place so

what what we could see that will take up

the slack from

the level we have today is

when

utilization

or demand starts to increase

there is room to

move stranded

assets into the working fleet

um

as you could see earlier in the

presentation

and a lot of the

uncompetitive

uh parts of the fleet uh

we have about 80 rigs today which we

consider uncompetitive they will

disappear and also some of the

more long-term stacked

units

on on the new building side it's also

worth to note that

many of the

shipyards that

has

previously been building offshore rigs

has moved away and

now

engaged in

shipbuilding

and it's unlikely that they will come

back

and start building rigs anytime soon

so

while the the

competitive fleet will increase with

stranded units and some stacked units

we don't see anywhere near as much

added supply as you can see in

the years leading up to 2014.

okay

thank you for that um we're at the end

of our uh a lot of time i know we have

um a few questions that haven't been

answered but uh we will reach out to

those people individually and answer

those questions for you over the next

couple of days

um i just like to say you know a huge

thank you to everyone for attending

today's presentation

um to confirm again this the recording

will be posted onto the sg and youtube

website in the next couple of days and

we'll send a copy of the uh the slide

deck to all those people attended today

um and thank you very much uh to the

three presenters for insightful

information and hopefully we all got

some some valuable takeaways from this

so thank you again and this uh concludes

today's presentation thank you everyone