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Guide

The rig market and offshore vessels

Around the fields works a fleet of rigs and specialised vessels owned by separate companies and hired out to the oil companies. Here are the types, what they do, and the concepts you need to understand the market.

Updated · about 4 min read · Written by OESA

Who owns and who hires

Oil companies rarely own drilling rigs and vessels themselves. They hire them from drilling contractors and offshore shipowners, who own the equipment and employ the crews.

  • Contracts run either for a fixed period, from a few months to several years, or in the spot market for single jobs lasting days or weeks. Supply vessels in the North Sea also trade in a spot market of their own.
  • The price is usually quoted as a dayrate: an amount per day the rig or vessel is working.
  • Among the companies with their own OESA pages are Odfjell Drilling and Borr Drilling (rigs), DOF Group (offshore vessels) and Subsea 7 (subsea contractor).

Drilling rigs

  • Jack-up: has legs that are lowered to the seabed, and the hull is jacked up above the water. Stable, but only in shallow water.
  • Semi-submersible (semi): floats on columns and pontoons and is held in place by anchors or dynamic positioning. Used in deeper water and harsh weather, and the most common type on the Norwegian shelf.
  • Drillship: ship-shaped, with dynamic positioning and large storage capacity. Mostly used in very deep water in milder climates, for example off Brazil and West Africa and in the Gulf of Mexico.

Mobile units registered in a ship register must have an acknowledgement of compliance (AoC, Norwegian SUT) from the Norwegian Ocean Industry Authority to take part in petroleum activities on the Norwegian shelf (Havtil). Rigs built for Norwegian conditions are often called harsh-environment rigs.

The offshore vessels

  • PSV (platform supply vessel): carries pipes, equipment, drilling fluids, fuel, water and food between the supply bases onshore and the installations.
  • AHTS (anchor handling tug supply): tows rigs and floaters and lays out and recovers their anchors. Needs a lot of pulling power.
  • CSV (construction support vessel): has a crane and remotely operated vehicles (ROVs) and installs, inspects and repairs equipment on the seabed.
  • Pipe- and cable-lay vessels lay pipelines, umbilicals and power cables, including for offshore wind and power from shore.
  • Standby vessels stay near the installations to help in case of accidents and oil spills.
  • Offshore wind needs dedicated installation vessels for the turbines and service vessels from which technicians can walk straight across to the turbine.

Most advanced vessels use dynamic positioning (DP): computer-controlled thrusters that keep the vessel on the same spot without anchors.

Dayrate, utilisation and backlog

  • Dayrate: what the client pays per day. When the rig or vessel has no contract there is no income, but crew and maintenance still cost money. Idle units can be stacked to save costs, but it takes time and money to reactivate them.
  • Utilisation: the share of time the fleet has paid work. Companies calculate it differently, for example with or without stacked units, so read the definition in the report.
  • Backlog: the sum of contracted future revenue, roughly dayrate times remaining contract days. It shows how much of the coming years' revenue is already secured. Options, where the client can extend the contract, are often counted separately.

Hypothetical example. The numbers are chosen to show the method and are not market rates.

A rig costs USD 150,000 per day to operate. At a dayrate of USD 250,000 it earns USD 100,000 per day before interest, depreciation and tax.

If the dayrate rises 20 % to USD 300,000, the margin rises 50 % to USD 150,000 per day. If it falls to USD 150,000, the margin is zero. That is why the results of rig and vessel companies swing more than the dayrates.

Why the market moves in cycles

  • Demand comes from the oil companies' spending on exploration, development and well maintenance, which follows expectations for oil and gas prices.
  • Supply is the number of rigs and vessels. New ones take years to build. When rates are high many are ordered; when they arrive at once and demand has fallen, the result is overcapacity and low rates. Units are then stacked or scrapped.
  • Contracts lag. Rates agreed today often apply to work starting a year or more ahead, so results change later than the market.

What to look for in the reports

  1. Fleet status: which rigs and vessels have contracts, with whom, at what rate and until when?
  2. The backlog and how much of next year's days are covered.
  3. Average dayrate and utilisation, and how the company defines them.
  4. Operating cost per day, and what it costs to stack and reactivate units.
  5. Debt and maturities, because rigs and ships are usually financed with loans.

See also the guide on how to read an annual report.

See rigs and vessels

  • The “Rigs and vessels” layer on the globe shows the mobile units the Norwegian Offshore Directorate has registered on the shelf.
  • The “Ships from AIS” layer also shows offshore vessels in near real time, where OESA has AIS coverage.

Sources

The guides are written by OESA students to explain concepts and how things fit together. They are not investment advice. Figures that are not definitions carry a source and a date; if you find an error, let us know at styret@oesa.no.

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