Offshore Sector Giving Boost To World Shipbuilders

Offshore exploration and well appraisal (E&A) activity is projected to increase almost 10 percent over the second half of this decade. Even more significant, spending for offshore E&A is projected to grow more than 20 percent during this period. Driving interest in the offshore sector are: (1) improved techniques for finding and quantifying new reservoirs and; (2) new techniques for producing deepwater and marginal fields. A result has been a resurgence of demand for offshore rigs and increasing interest in floating production equipment. Offshore rig demand Increased utilization and higher day rates for semisubmersibles and other mobile drilling equipment has resulted from the pick up in offshore development. Mobile drilling equipment has reached the highest utilization level since January 1985. Semisubmersibles working offshore Europe are realizing a 91 percent utilization level — and mobile drilling rigs offshore West Africa are achieving almost 95 percent utilization. Rates now being achieved by fourth generation semisubmersibles are exceeding $130,000 per day — compared to $60,000 to 75,000 per day in mid-1995 and $50,000 to 55,000 per day in mid-1994. Drillships are getting rates more than 50 percent higher than a year ago.

The increase in day rates for rigs and drill ships has begun to generate demand for new or upgraded equipment. There is no shortage of activity. Here are a few examples of reported rig and drillship construction or upgrading projects.

• Sonat Offshore has announced plans to up- grade three rigs and build/upgrade two drillships for deepwater use — and recently signed a contract with Astano for construction of the drillship Discoverer Enterprise.

• Global Marine plans to convert/ upgrade a flotel for rig use and upgrade one or two additional rigs for deepwater drilling. Global also plans to spend more than $150 million to convert Glomar Explorer to a deepwater drillship.

• Falcon Drilling plans to convert a 542-ft., Ukrainian-built hull to a deepwater drillship capable of operating in water depths of 8,000 ft.

• Odfjell plans to build a fifth gen- eration semisubmersible utilizing the steel pontoons of a rig begun in 1986. Total cost is expected to exceed $200 million.

• Conoco is understood to be planning to place an order for a deepwater drillship, possibly in joint venture with Reading & Bates. • Sedco Forex plans to upgrade two rigs for deepwater drilling. • Saipem will convert the flotel Scarabeo 7 (ex-Safe Supporter) to a deepwater drill rig — and is currently shopping yards in the U.S.

and Europe for performing the conversion.

• Japan Drilling is studying the possibility of building two new semisubmersibles.

• PMB/Bechtel has been given a contract by Nobel Drilling to study conversion of a three-column submersible into a semisubmersible drill rig.

The pick up in offshore activity has ended a long dry spell. There has been little activity in rig construction for quite some time. The Odfjell and Sonat orders for new units this year are likely just the beginning of a flow of contracts for new semisubmersibles and drillships. We expect increasing demand for new units — particularly as the inventory of suitable second generation rig conversion candidates dries up.

Demand for floating production systems Construction and conversion of floating production equipment will provide a substantial available market over the next several years. To satisfy requirements for projected installations of floating production systems in the year 2000, capital expenditures exceeding $10 billion will be made for new floating production equipment over the next three to four years. Almost half of these expenditures will be for construction and conversion of FPSO vessels. Another large portion will be for production semisubmersibles and tension leg platforms.

We expect that demand for floating production systems will continue well into the next decade.

However, there will be a shift in demand for various types of equipment with increasing emphasis on TLPs and other production units able to produce large multiwell fields.

We see demand for floating production systems increasing par- ticularly in the Gulf of Mexico, where E&A activity is rapidly accelerating. Subsea production will accommodate most of the new gas finds in the Gulf, but oil will continue to be difficult to transport long distances at great depths and floating production systems will need to be positioned over individual fields. Because pipeline infrastructure exists in the Gulf, there will likely be little requirement for FPSO vessels in this area — as onboard storage will not be required. As a result, demand in deepwater Gulf locations will generate a growing requirement for TLPs and other systems able to economically produce large, multiwell fields. We believe that fabrication of TLPs (and possibly SPARS) for installation in the Gulf of Mexico will generate the greatest contract value for floating production system suppliers in the next decade.

IMA's study of floating production systems This article is an excerpt from the first of a series of quarterly reports that IMA will issue over the next year to continually monitor this fast moving business sector. Each of these quarterly reports will be a tight, objective assessment of the current business situation. A special section will be included in each report examining a specific segment of the floating production market.