Nearly 20 jackups left the offshore rig fleet during the first quarter of the year. A lot more are coming as rig owners throw in the towel for their old assets.
As we’ve mentioned before, nobody likes scrapping jackups. They’re cheap to stack, risky and expensive to move, and generally have lower steel value than drillships and semisubs.
Until recently, owners have been reluctant to send them to the scrapyard. Now, as low dayrates persist and old rigs continue to rot, the likelihood that older rigs will ever come back into the market again has all but disappeared.
Owners’ realization of this, combined with higher steel prices and more scrap buyers in the market, is driving the trend in jackup scrapping we’re seeing today.
Jackup scrapping volume to triple in 2018
Looking at data from the Bassoe Analytics offshore rig database, 21 jackups left the fleet in 2017 (15 for scrapping and 6 for conversion). Although we’re only a little more than one quarter through the year, jackup attrition in 2018 has already reached 17 rigs.
Borr Drilling and Paragon Offshore (who are completing the transition process after Borr’s acquisition of Paragon), have together contributed to 11 of the 17 jackups sold in 2018. They’re expected to add another ten rigs from the stacked Paragon fleet over the next few weeks, bringing the total sold this year to 27 jackups.
But Borr’s not the only owner who’s getting in on the action. We expect to see up to 60 rigs scrapped or sold for conversion this year, around three times the amount sold in 2017.
Nobody knows what “real” jackup supply is anymore
There are currently 493 jackup rigs in the market plus 89 under construction. If we take out rigs which are non-competitive as defined by age (built pre-2000), special survey date (past due or soon due), stacking status (cold stacked), and delivery likelihood (in the case of newbuilds), we get to a potential supply range of 340–515 rigs, with a pool of 160 old rigs still in some state of competitiveness.
Real competitive supply in the jackup fleet is one of the great unknowns today. The pool of 160 old rigs (125 drilling plus 35 stacked) will determine what the supply number eventually becomes.
And over time, as operators’ preferences for newer rigs strengthen and owners forego investments to keep old rigs in service, more and more rigs in the “old pool” will end up at scrapyards.
The jackup “scrapfest” has officially begun and it’s going to intensify.
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