Bassoe: Owners still reluctant to recycle old jack-ups

The offshore rig market has been flooded with newbuilds over the past 10 years. Now oversupply is killing utilization and dayrates. While attrition in the semi-submersible fleet has had a material effect on supply, old jack-ups are staying around, writes David Carter Shinn, partner at Bassoe Offshore, a Norwegian rig brokerage agency.

 

By David Carter Shinn

 

So much jack-up recycling potential, but little incentive. By 2018, we estimate that about 175 jack-up rigs older than 25 years will be stacked. As reactivation and special periodic survey costs for these rigs will be out of proportion with rig asset values, it is unlikely that any cold stacked pre-1990s built jack-ups will ever enter the market again – especially when jack-up oversupply is approaching 300 rigs.

 

But will these rigs ever be recycled? Over the last two years, only eight jack-ups have been recycled compared to 54 semi-submersibles and 12 drillships. Currently, jack-up rig owners are able to ignore their old assets and put off recycling as stacking costs are very low. While they incur costs for this, these are minimal compared to the potential costs involved in recycling their rigs. En masse recycling of jack-ups is, therefore, unlikely to happen in the short term.

 

Jack-ups are more challenging (and costly) to recycle

Of the three main types of mobile offshore rigs, jack-ups are by far the most challenging to recycle. Drillships and semi-submersibles have significantly higher amounts of steel than jack-ups, and, in many cases, drillships (and sometimes semisubs) can mobilize to the recycling yard under their own propulsion. Jack-ups need to be either towed or transported on heavylift vessels at considerable costs.

This means that the ratio of steel value to transport cost is much higher for floaters compared to jack-ups And as second hand rig equipment values are low at the moment due to oversupply of rigs, there is little opportunity for owners to recover additional value through the piecemeal selling of such equipment.

Jack-ups may also have mechanical issues which increase cost and risk related to preparation for transport. Most jack-ups that are designated for recycling have been cold stacked (and virtually abandoned) for long periods of time. During this time, jacking systems may have become non-operational. The challenge of jacking the rigs down adds additional risk into the recycling process.

View post on imgur.com

Beyond that, spudcan protrusion underneath the hull of a jack-up may, in some cases, lead to the need for “cribbing” to be mounted on a heavylift vessel if the rig cannot be wet towed to the recycling yard. This adds more cost into the equation.

On the recycling yard side, many yards are not properly equipped to handle and remove the jack-up legs. The work, therefore, required by the yard is more time consuming than for floating rigs, and yards may also have to make investments in facilities and equipment to handle jack-ups. As such, recycling yards see jackups as being less attractive and are either unwilling to do it or will pay less per ton of steel to the owners for the rig (unless they can secure a high volume of rigs at once).

As a recent example, take the Maersk Endurer which was recycled under a “green recycling” process – an environmentally friendly and socially ethical approach – at the Zhoushan Changhong International Ship Recycling yard in China. The project turned out being more complicated than expected, with leg dismantling being one of the main challenges. Ninety eight percent of the rig was able to be recycled, but it took 44 weeks – equivalent to over 50% of construction time for a newbuild.

Will they stay or will they go?

 

Most of the large international drilling contractors want old, stacked jack-up rigs off their books. Although being the first mover in fleet attrition might not be attractive to any rig owner, it is likely the cost and use of internal resources plus, to a limited extent, the fact that certain markets like the Middle East and India still have lingering demand for old rigs that is holding the majority of owners back.

While jack-ups can remain stacked for many years, eventually these assets may become such liabilities, and the oversupply in the market will become so onerous on charter rates and demand that owners will accept recycling as the only option even as they acknowledge that they will incur a financial loss in the process.

Over the last two years, four of the eight recycled jack-ups were located in the Middle East. Jack-ups in this region are less costly to transport as they are able to be wet towed to recycling yards in or around the region. While there is more likelihood of recycling additional rigs in this region in the near term, the major challenge remains for old jack-ups in regions such as the US Gulf where there are limited viable options for recycling.

Over the medium term we believe that solutions may become available to rig owners to make the offshore rig recycling process more efficient, less time consuming, and safer (i.e., “green recycling”). This, combined with the fact that over 100 higher spec newbuild jack-ups will be delivered from yards, should encourage more recycling and improve the imbalance in the global rig fleet.

 


Offshore Energy Today has shared the article above with permission from the author. You can read the original post at Bassoe.no

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Offshore Energy Today.

Share this article

Follow Offshore Energy Today

Posted on January 13, 2017 with tags , .

Events>

<< Sep 2019 >>
MTWTFSS
26 27 28 29 30 31 1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 1 2 3 4 5 6

Africa Oil & Power 2019

The Africa Oil & Power conference will bring together an elite class of ministers and senior-level government…

read more >

OWI LATAM 2019

Over the two-day conference, 25+ expert speakers will share exclusive insight on how to develop an integrity, production and P&A strategy…

read more >

Uganda International Oil and Gas Summit 2019

Uganda International Oil & Gas Summit will once again examine the industry’s developments…

read more >

Argentina Oil and Gas Expo 2019

The Argentine Oil and Gas Institute (IAPG) organizes the Argentina Oil & Gas Expo bringing together the most…

read more >

Jobs>

Looking to fill a job opening?

By advertising your job here, on the homepage of OffshoreEnergyToday.com, you'll reach countless professionals in the sector. For more information, click below...

apply

Looking to fill a job opening?

By advertising your job here, on the homepage of OffshoreEnergyToday.com, you'll reach countless professionals in the sector. For more information, click below...

apply