While delivery dates for the 107 jackups under construction get pushed back toward 2020, the path to achieving deliveries couldn’t be more obstructive.
By David Carter Shinn
Last week, COSCO Shipyard announced that it “sees no notable upturn in the global market any time soon” and will close three of its five offshore yards by 2020 to cut overcapacity. While prospects for building new jackups rigs over the medium term are virtually nonexistent, a more pressing problem for the Chinese yards is delivering the 65 jackups they already have.
But the problem isn’t just in China. Keppel FELS and PPL in Singapore are stuck with another 29 rigs which should (and, for the most part, could) have been delivered by now. Globally, there’s a total of 107 newbuild jackups waiting to enter a market which is already oversupplied by over 80 comparable rigs built post-2000 and by nearly 230 in the segment overall.
False hope for newbuild deliveries?
In most cases, owners are sitting with outstanding balances which are higher than the values of their rigs. Whether owners have funding to take delivery or not, they are deferring delivery as long as they can in an effort to wait for a market upturn. Yards and owners are caught in a closed loop: defer; wait; repeat.
Will it ever end? Not for the next two years at least. There’s a long list of reasons why, but here are a few of them:
Shipyards aren’t acting commercially
With the jackup market in its current state, it’s hard to understand the complacency of the yards. While yards have been very accommodative on agreeing to delivery deferrals, these efforts amount to sticking one’s head in the sand. Simply waiting for the market to undergo a material transformation not only in contracting activity, but in fleet supply (i.e., removal of old rigs) will only continue the long, self-destructive process that is already underway.
As such, one would think that yards would become more creative in finding solutions for their rigs. But we have yet to see any indications of proactive, commercially-focused solutions from yards (or owners) which could alleviate the situation and help apply some force to the gridlock.
What could these solutions be? Look for more on that in our next article.
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