Page 64: of Maritime Reporter Magazine (November 1996)

OFFSHORE INDUSTRY

Offshore Boom Continues: Long-Term Newbuild Prospects A Reality $400 Million Joint Venture Leads To $200 Million Order For Samsung

Ultra Deepwater

Dynamically Positioned v Drillship

Despite some skepticism regarding the depth and length of the offshore rebound, it becomes clearer each day that the offshore market, as a whole, will present builders from around the world with solid, long-term business prospects

In a recent speech to the International

Association of Drilling Contractors, Matthew

R. Simmons, of Simmons & Co. Intl. (Houston), cited a shortage of idle rigs, particu- larly a tightness in the pool of rigs capable of drilling in deepwater and harsh environments.

This need translates to business for shipyards both domestic and abroad, as oil majors contin- ue to explore deeper waters. "The drilling industry's first response to the shortage of deepwater rigs was to begin a major upgrade cycle," said Mr. Simmons. "Today, about a dozen offshore rigs are being converted into deepwater rigs alone. The conversion is both expensive and time consuming, but is still less expensive and faster than considering building a new deepwater rig. "A year ago, many of the rigs were not even working and could be purchased for between $5 and $10 million," he continued. "Today, nearly all the units capable of being upgraded are fully utilized with day rates as high as $80,000.

Furthermore, now that the fair market value rig is approaching $50 to $70 million (seven to 10 times more than when the first upgrades began a year ago), adding another $40 to $100 million to the costs makes even the rebuilt rig an expensive option." He said he believes the end is near for the rig upgrade cycle, and a vast expansion of deepwater projects in the Gulf of

Mexico alone will push the industry into new rig additions. "To give a sense of the backlog of deepwater wells that need to be drilled, there were just

Korea's Samsung Heavy Industries recently won a $200 million venture between Conoco and Reading Bates. over 1,000 deepwater leases in water depths beyond 3,300 ft. (1,005 m) in the Gulf of Mexico as of last April. Then came the Deepwater

Royalty Relief, followed by the Central Gulf of

Mexico Lease Sale. Suddenly, the number of deepwater leases jumped another 40 percent.

Then came the September lease sale in the

Western part of the Gulf, and the 3,300-ft. and deeper water depth leases increased another 30 percent. So, in just six months, the need to drill in an already tight rig market has increased 70 percent," Mr. Simmons analyzed. contract to build this Ultra Deepwater Drillship for a new joint

Despite the highlight on the Gulf of Mexico,

Mr. Simmons emphasized that there will be a continuing need for rig projects worldwide. He points out that of the total population of semis in the world, 43 of the 141 rigs are now more than 20 years old. While many argue that, properly maintained, rigs should last forever, he said that there is only one rig (of the 143 semis now in operation) that was built before 1970. The jackup fleet has a similar age profile, with 53 jackups in the world now exceeding 20 years of age.

The $400-Million Deal

Conoco and Reading Bates announced the for- mation of a 50/50 venture to execute a $400 million, five-year drilling program in the ultra deepwater Gulf of Mexico. The new company will carry out the program for Conoco. To meet the challenges of drilling in ultra deepwater, the new company has commissioned construc- tion of a $200 million, world-class, dynamically positioned drillship capable of drilling at water depths up to 10,000 ft. (3,048 m). The vessel will carry the most stringent ABS requirement for dynamically positioning systems, DPS-3. "Having a drillship solely dedicated to

Conoco's Gulf of Mexico operations fits our strategy to resume a leadership role in explor- ing the deepwaters of the region," said Archie

W. Dunham, president and CEO of Conoco. "This drillship, the venture with Reading &

Bates, and our previous experience in deepwa- ter exploration and production give us the tools and expertise necessary to fully explore these blocks." (Continued on page 89) 4.000' WD 10,000'WD

Gulf Of Mexico

Ultra Deepwater

Depositional Model

Jolliet 1,760'

Bp! 66 Maritime Reporter/Engineering News