A jackup rig is simple in concept: a mobile unit that floats during transport but rests on the seabed during drilling and well operations and that can be lifted on its legs above the surface of the sea to minimize the influence of waves during operations, to be lowered afterward before moving on to the next job.

While much of the offshore industry limelight at present is falling on the performance of complex high-end ultra-deepwater semisubmersible rigs, the jackup sector is enjoying its own revival with high-specification units being delivered and ordered. These play a vital part in the future strategic ambitions of oil companies around the world.

According to a recent presentation by Pareto Securities of Norway, jackups generate good cash flow. At a day rate of US $150,000 and a utilization rate of 95%, a standard unit will bring in $52 million a year, while with an opex level of around $50,000/d and a 100% utilization rate it will cost $18 million, equating to an earnings before interest, taxes, depreciation, and amortization (EBITDA) of $34 million.

With an estimated construction cost of $210 million, EBITDA payback takes around 6.2 years – for an asset that will last at least 30 years.

Pareto pointed out that utilization rates for premium jackups troughed in July 2009 at 82% but that even then that was extremely solid given that the oil price was less than half its current level today. If a jackup had been ordered at a “peak price” of $240 million, the company added and then delivered at the worst point in time (an oil price of circa $45/bbl to $60/bbl), the residual value of the unit would today be $175 million. It also could probably be sold today for at least $220 million, illustrating the low risk of building new jackup rigs.

Day rates ticking upward

In the present market day rates are continuing to tick upward. Oil companies are paying up to $205,000/d for nonharsh-environment rigs, with harsh-environment units bringing rates of up to $280,000/d and longer contract duration periods.

This is one of the reasons why the jackup market has been rebounding strongly and consistently from its last downturn in 2009, with the picture at year-end 2012 reflecting a continued resurgence. Utilization rates reached 90% globally at year-end 2012, with contractors busy retooling the global fleet with more than 85 units added to order books over the last 30 months (including 23 in 2012).

As many as 50 newbuild jackups could be delivered to market this year, raising the possibility of actual excess capacity later in the year. However, the counter-argument is that a number of these new units will simply be replacing aged, lower-specification commodity jackups.

Pareto, in fact, takes that argument a lot further. With high global demand driven by regions such as the Middle East, Mexico, and Southeast Asia in particular and with traditional markets like the North Sea also remaining strong, Pareto said the aging global fleet will pose a major challenge as demand continues to rise.

Aging fleet

Mexico and the Middle East (where Saudi Aramco and other regional players are increasingly active offshore and aggressively contracting rigs at high day rates) could demand as many as 25 to 30 new jackups, the company estimated, meaning essentially all new-builds will be absorbed. With around 8% of the global jackup fleet in operation – currently numbering close to 500 – to be more than 40 years old by 2015, it says these older units will be cold-stacked and then almost certainly scrapped.

As of mid-2012 there were nearly 90 rigs on the order books, with more than half of those due to arrive during the course of this year. In Pareto’s view the number of warm-stacked rigs will continue to remain in the 20- to 30-rig range due to units being in yards and between contracts.

By the time the industry gets to 2020 it needs to have received or lined up for delivery a combined 200 new jackup rigs over the 10-year period from 2015 to 2025 to both replace older generation units due to be cold-stacked and scrapped and to meet the forecast growing demand for newer, higher-specification rigs over that same period.

Statoil’s Cat J program

Taking a typically proactive approach has been Statoil. The company last year launched its specially designed Category J rig program as part of its push to secure and enhance its domestic oil and gas production levels going forward.

The new design high-specification Cat J jackup rigs will be able to operate at water depths ranging from 70 m to 150 m (230 ft to 492 ft) and drill wells to a depth of 10,000 m (32,800 ft). These rigs will primarily be customized workhorses for year-round drilling, completion, and workovers on an increasing number of production wells on mature fields offshore Norway to improve overall recovery rates. They also will be tailor-made for the region’s harsh-environment, shallow-water areas.

The operator is expected to start issuing awards to build the first units imminently after tendering for them mid-2012 to contractors Seadrill, Maersk, Rowan, Ensco, Transocean, and Noble. It already has prepared the way in terms of construction space by reserving slots at five Southeast Asian “preferred” yards: Samsung, Daewoo, Hyundai, Keppel, and Jurong.

The operator also has proposed that the license groups take on the ownership of these rigs, which Statoil said will deliver wells 20% more efficiently than conventional rigs. Jon Arnt Jacobsen, chief procurement officer at Statoil, said upgrading and adapting many of the existing rigs would have been too costly, hence the Cat J program. Taking up ownership of the new rigs through the licenses would “improve economics further.”

The first two such “super-sized” rigs are planned to be delivered in the second half of 2015 and are expected to be used on mature fields such as Gullfaks and Oseberg, while a third rig is lined up for the Mariner field in the UK sector by 2016. All three units will be built as modified versions of GustoMSC’s CJ70 jackup design.

Build costs for the Cat J rigs are put at approximately $600 million per unit, an expensive price for a newbuild jackup but one that Statoil believes will more than pay for itself in terms of enhanced production returns.

Aggressive Aramco

Fellow national oil company Saudi Aramco also has been on a tendering and contracting spree since the start of 2012, securing rigs on three-year contracts at day rates well above previous levels. The company is expected to have close to 40 jackups in action this year.

In 2012 the company also signaled its intent to become a more direct participant in the sector, receiving in October a newbuild jackup that was only the second to be owned and fully operated by Aramco itself. Significantly, it also was the first offshore jackup rig that the state-owned major had built from scratch to fit the Arabian Gulf’s offshore fields. The rig was built by Keppel FELS in Singapore and is equipped with generator sets that can be used to power the entire rig facilities. It also has an equivalent emergency generator for backup in case of power failure.

Its 54-motor jacking system allows it to carry a greater load than the normal 36-motor rigs, while its water cooling system enables quicker heat removal compared with the traditional air cooling of other rigs.

The KFELS Super B Class unit named SAR 202 is capable of being jacked up to work in water depths of more than 122 m (400 ft), allowing it to operate in the deepest Gulf fields of Marjan, Karan, Arabiya, and Hasbah. It has a high capacity hookload of 2 MMlb for operations in HP/HT wells and can drill to a total depth of 9,144 m (30,000 ft).