Rig Rates - Up Or Down ?
Posted by Big Gav
The Business Standard of india reports that rig rates are on the slide as falling oil prices make exploration much less attractive - Rig rates down by 10 per cent.
The current global credit crisis and an over 63 per cent fall in crude oil prices in the last four months have resulted in oil companies drilling fewer wells in offshore areas. This has increased the availability of rigs across the world and helped bring down rig rentals by up to 10 per cent in the recent past.
The rig rates have corrected primarily in the shallow water fields where there have been traditionally more rigs available.
Daily rentals of jack-up rigs — those used for drilling in shallow waters — have come down from around $200,000 to $180,000 currently. Rates are, however, still over three times higher than they were two years ago, analysts said.
“Rig rates have corrected with oil prices coming down. Exploration companies, which are due to renew their contracts or firm up new contracts in the coming months, stand to gain from the current slide,” said Dilip Khanna, partner, Ernst & Young’s Oil and Gas Practice.
The exploration activity in deep water fields, which has high cost of production, is also likely to get impacted as the current price of crude below $50 per barrel makes the exploration unviable.
“Exploration may slow down if the belief is that the price will remain at this level,” said Ravi K Sheth, executive director of Great Eastern Shipping and managing director of Greatship India. “Oil companies must be reviewing their budget to see how much can they set aside for exploration,” he said.
Bloomberg reports that expectations that deepwater rig rates will fall may be completely wrong, however - Deepwater Rig Rates Jump as Shortage Trumps Oil Drop.
Rental rates for deepwater drilling rigs continue to surge as a worldwide shortage of vessels used to search the oceans for oil outweighs the biggest drop in crude prices in a quarter-century. Transocean Inc., the world’s largest offshore oil driller, agreed to lease its C. Kirk Rhein Jr. rig to Burgundy Global Exploration Corp. for $550,000 a day, a 52 percent increase from the previous rate, according to a public filing today. ...
The global credit crunch is a boon for rig operators such as Transocean because the lack of financing is preventing smaller rivals from following through with plans to build new vessels. As many as one-fifth of the new deepwater rigs on order in shipyards from South Korea to Norway will be canceled or delayed because of capital constraints, Uhlmer said in October.
Demand for vessels that can explore more than 6 miles (9.7 kilometers) below the sea surface and hundreds of miles from shore has risen faster than the world’s supply of the most- sophisticated drill ships, pushing day rates to a record.
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