February 2020

Drillship rates closing in on USD 300,000 per day threshold

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Dayrates for drillships are forging ahead on the path to recovery, having increased by 14% from an average of $170,000 per day in 2018 to $193,000 per day in 2019 for new unique contracts. The dayrates awarded to each drilling contractor cover a wide spread around these averages, varying based on equipment specification requirements as well as scope and length of the contract, among other factors. While a direct comparison is not straightforward, the Stena IceMAX was the clear winner of the 2019 rate race, signing a $299,000 per day contract with China National Offshore Oil Corporation (CNOOC) to drill up to three wildcats in the Flemish Pass off Newfoundland in 2020. The Stena IceMAX specializes in operating in harsh environments and was contracted at a significantly higher rate than its benign counterparts, proving the point that the premiums commanded by harsh-environment rigs are not slowing down. 

Diamond Offshore’s drillships Ocean BlackHawk and Ocean BlackRhino closely followed the Stena IceMAX in the race for the highest rates amongst drillships, each having secured rates in the $280,000 per day range from Woodside to work on the SNE field in Senegal. These contracts have assured more than four years of backlog with the work scope covering drilling and completion of at least 18 wells with an option to drill up to eight more. 

Both Ocean BlackHawk and Ocean BlackRhino come with a significant track record from operations in the Gulf of Mexico, where they outperformed industry averages, and are highly capable units with a score of 104 on Rystad Energy’s static rig-scoring system. The methodology behind the static rig score assigns a rank to each rig based on its technical capabilities, independent of any specific project parameters. The drillships are both capable of performing full dual activity and have dual blowout preventers (BOPs), a hookload rating of 2.5 million pounds and a rated drilling depth of 40,000 feet. These specifications give the units a high rig score and earned them the second-highest dayrate signed in 2019 – clearly showing that operators are willing to pay top dollar to contract the best rigs to carry out their drilling programs. 

The next tier of rig rates in the race is led by Seadrill’s West Carina, contracted by PTTEP in Malaysia, and Transocean’s Dhirubhai Deepwater KG2 which was hired by Chevron in Australia, both at rates around $260,000 per day for short-term contracts of six months. Although both contracts are valued at similar dayrates, there are significant differences in the technical specifications of each drillship. While both units are dual activity, the Dhirubhai Deepwater KG2 is a single-BOP unit with a hookload of 2.0 million pounds, while the West Carina has a dual-BOP system with 2.5 million-pound hookload. On paper, the variation in technical specifications means the West Carina scores 23 points higher on the static rig score than the Dhirubhai Deepwater KG2. Despite these variations, both drillships have been contracted at the same dayrate, showing that other factors than technical specifications also come into play when a rig’s dayrate is determined. The geographic location of the rigs plays an equally important role – in this case, Chevron decided to pay a higher rate to contract the Dhirubhai Deepwater KG2, which was already operating in the Asia-Pacific region, instead of hiring a rig from another region that would cost more to mobilize both in terms of time and money.

In light of these trends, Rystad Energy will continue to track whether a tightness in the seventh-generation drillship segment, combined with cost-conscious oil and gas companies, will translate into an increase in dayrates for the sixth-generation market.