Last month, the first of seven new ultra-deepwater semi-submersible drilling rigs ordered by US drilling company Ensco started on a four-year contract with Anadarko and Eni.
Putting the Ensco 8500 to work marks the second step in a major shift for the company as it seeks to become a major player in the pursuit and development of deepwater oil&gas resources worldwide.
That shift started with the delivery of the Ensco 7500 rig in 2000, and the company has since committed more than $3billion to the fleet of 8500-class units, with the second, Ensco 8501, due to go to work late this year.
For Mark Burns, president of the company’s international unit, this is an especially exciting time. He told Energy that the company had been preparing its deepwater capability carefully and that the Ensco 7500 had played a key role in that.
Moreover, a substantial contract recently secured with Pemex involving a number of jack-ups has enabled the release of a number of experienced rig personnel to the 8500-class project.
“We’re using a combination of proven Ensco personnel and then going out to the market and hiring others,” said Burns.
“I think it’s coming together well. We’re pleased, our personnel are excited and it’s a new chapter in the company’s history.
“We’re working with Eni first (8500), and then the 8501 is due to depart Singapore late-June and should be on contract in the Gulf of Mexico by September/October … that is with Nexen and Noble Energy sharing the rig.”
Burns said that one of the key features of the company’s ultra-deepwater programme was that all seven 8500-class rigs would be identically equipped.
This speeds up the build process and makes it easier for personnel transferring between rigs.
“We’re on schedule with all remaining deepwater rigs; two to be delivered in 2010, one in 2011 and two in 2012, so making up the seven rigs.”
Given that the last of the new class is still three years off delivery, Energy asked Burns if it had been possible to haggle construction costs in the light of the credit crunch and slackening of pace offshore as the price of oil gyrated. The answer was no.
“We have firm contracts with the shipyard. We’re dealing with one only – Keppel FELS in Singapore. We committed at a price, and one of the reasons why we like the 8500 series is that it’s our design and it’s a more cost-effective rig to build and operate.
“We think we can compete very effectively against others with this class of rig and get a great return on it because we’re able to control the costs. In terms of renegotiating a contract with a shipyard … it is a firm contract. In any case, they went out and bought the steel early on and committed prices with vendors.
“We’re not in a position to go back and renegotiate. However, because of our cookie-cutter approach with these rigs, we’re in a position to make sure that they come out on time and that costs don’t run away.
“Completing the deepwater expansion … these seven rigs … is the number-one priority as we transition from being primarily a jack-up orientated company to one that will have jack-ups and deepwater assets.”
So where will this place Ensco in the drilling contractors’ league table?
“If you look at 7,500ft and greater water-depth capability, and speaking solely of semis, we’re up there tied with Seadrill and Transocean, all three of us having about 12% of the market each,” said Burns.
At the time of our meeting with Ensco, four of the new rigs had contracts, the others not. But Burns was unfazed.
“We have ongoing discussions with a number of customers about those three rigs,” he said.
“Our view of it is that, as we get closer to delivery – and keep in mind that the last three will be 2011-12 – as we get within a year-and-a-half to two years of delivery, that’s when we think the window of opportunity for us will be the greatest.
“There will be enough companies at that stage that will have identified their deepwater programmes, and we feel we’ll be more successful within that window of negotiating better contracts.
“As soon as we announced that we were building these rigs we began the marketing effort, but we’re willing to be very patient. Anyway, we still see this as an under-supplied market when you talk about sixth-generation deepwater.”
Of the four committed units, the first is with Eni/Anadarko; the second with Nexen and Noble Energy; the third with just Nexen, and the fourth fixed with Cobalt Energy. All four are scheduled to start their careers in the US Gulf of Mexico.
Whereas many companies finance ambitious projects based on loans and debt facilities, that is not the case with Ensco, which is cash-rich.
“We’re paying for this deepwater construction programme through internally generated cash flow from ongoing operations, which is very important for us. In other words, we’re not going out to market to buy debt,” said Burns.
“Over $900million of cash and $200million or so of debt – so more cash than debt – which is a good position to be in these days.”
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