Transocean's India rig rates lower than expected
Transocean Inc, the biggest provider of offshore drilling rigs, contracted dayrates with India's state-run oil company that were lower than analysts expected, spurring concern that the shallow-water equipment market is plateauing.
Still upbeat: Some analysts say that even if international jack-up rates decline, drillers are still making money and the industry has not lost money on new rigs
New contracts for 2008 and 2011 with Oil and Natural Gas Corp have rates of US$145,000 per day for jack-up rigs, so named because they have retractable legs that extend to the sea floor, the Houston-based company said yesterday in a fleet-status report. Analysts were expecting rates above US$160,000.
'Operators are becoming increasingly aggressive in negotiating terms,' said Thad Vayda, an analyst at Stifel Nicolaus & Co in Baltimore who rates Transocean a 'buy' and doesn't own the shares.
'It's a big negotiating game, but at the end of the day, jack-ups are a commodity product, more of a commodity product than deepwater semi-submersible or drillships, and there's a lot more of them, so the customers are basically flexing their muscles, and as a result, pushing dayrates down.'
Daily rents for jack-ups were between US$140,000 and US$210,000 in India and the Middle East as of Aug 14, according to market researcher ODS-Petrodata.
A boom in jack-up rig construction might create a plateau on international dayrates, which rose during the past two years as national oil companies in the Middle East and Asia ramped up drilling activity, according to analysts. Now those same national oil companies are exerting more pressure on drillers ahead of additional units expected for delivery.
There were 35 new jack-up rigs scheduled for delivery in 2008 as of Aug 1, according to Tom Marsh, US publisher for ODS-Petrodata.
'There is a lot of capacity coming into the market,' Mr Marsh said in an Aug 30 interview from Houston. 'Thirty-five rigs is a significant number of rigs, and because of that and because the jack-up market is not as strong as the deepwater market, operators are going to have more leverage on rig owners when negotiating contracts. But that doesn't mean the contracts are not going to be profitable.'
Concerns about contract rates aren't limited to India. Last month Sugar Land, Texas-based Noble Corp, the fourth-largest offshore driller, reported Chevron Corp had exercised an early termination right in its contract for a jack-up offshore Nigeria as it continued negotiations with the country's state oil company.
The Chevron contract is 'simply an issue of relationships between joint-venture partners,' Noble chief executive officer Mark Jackson said on Tuesday in a conference call with analysts.
'It isn't that significant in the grand scheme of things,' Sebastian Spio-Garbrah, an analyst for the Eurasia Group who covers Nigeria's oil company, said from New York.
Even if international jack-up rates decline, drillers are still making money, Mr Marsh said.
'Nobody's losing money,' he said. 'There have been so many cycles in the past where the industry has lost money on new rigs coming out, but that's not the case right now.'
Still upbeat: Some analysts say that even if international jack-up rates decline, drillers are still making money and the industry has not lost money on new rigs
New contracts for 2008 and 2011 with Oil and Natural Gas Corp have rates of US$145,000 per day for jack-up rigs, so named because they have retractable legs that extend to the sea floor, the Houston-based company said yesterday in a fleet-status report. Analysts were expecting rates above US$160,000.
'Operators are becoming increasingly aggressive in negotiating terms,' said Thad Vayda, an analyst at Stifel Nicolaus & Co in Baltimore who rates Transocean a 'buy' and doesn't own the shares.
'It's a big negotiating game, but at the end of the day, jack-ups are a commodity product, more of a commodity product than deepwater semi-submersible or drillships, and there's a lot more of them, so the customers are basically flexing their muscles, and as a result, pushing dayrates down.'
Daily rents for jack-ups were between US$140,000 and US$210,000 in India and the Middle East as of Aug 14, according to market researcher ODS-Petrodata.
A boom in jack-up rig construction might create a plateau on international dayrates, which rose during the past two years as national oil companies in the Middle East and Asia ramped up drilling activity, according to analysts. Now those same national oil companies are exerting more pressure on drillers ahead of additional units expected for delivery.
There were 35 new jack-up rigs scheduled for delivery in 2008 as of Aug 1, according to Tom Marsh, US publisher for ODS-Petrodata.
'There is a lot of capacity coming into the market,' Mr Marsh said in an Aug 30 interview from Houston. 'Thirty-five rigs is a significant number of rigs, and because of that and because the jack-up market is not as strong as the deepwater market, operators are going to have more leverage on rig owners when negotiating contracts. But that doesn't mean the contracts are not going to be profitable.'
Concerns about contract rates aren't limited to India. Last month Sugar Land, Texas-based Noble Corp, the fourth-largest offshore driller, reported Chevron Corp had exercised an early termination right in its contract for a jack-up offshore Nigeria as it continued negotiations with the country's state oil company.
The Chevron contract is 'simply an issue of relationships between joint-venture partners,' Noble chief executive officer Mark Jackson said on Tuesday in a conference call with analysts.
'It isn't that significant in the grand scheme of things,' Sebastian Spio-Garbrah, an analyst for the Eurasia Group who covers Nigeria's oil company, said from New York.
Even if international jack-up rates decline, drillers are still making money, Mr Marsh said.
'Nobody's losing money,' he said. 'There have been so many cycles in the past where the industry has lost money on new rigs coming out, but that's not the case right now.'