How has China performed in the mobile drilling rig market?
2017-07-05 09:00
Over the past decade, China has become a more significant player in the offshore drilling rig market, with significant growth in both construction volume and fleet ownership. As of early June 2017, Chinese shipowners owned a total of 86 mobile offshore drilling units (MODUs), accounting for 9% of the global fleet, with another 38 under construction. In addition, 44 MODUs owned by foreign shipowners are being built in Chinese shipyards.
National Team Takes the Lead
Traditionally, China's oil and gas projects have been dominated by the three major state-owned oil companies: CNPC, Sinopec, and CNOOC. In the field of offshore oil and gas exploration and production, CNOOC holds an absolute dominant position, with its subsidiary CNOOC Services currently owning 44 mobile drilling rigs. Overall, as of early June 2017, 83% of China's drilling rig fleet belonged to the three major state-owned oil companies. Although a considerable number of drilling rigs in the state-owned oil companies' fleets are idle, the active rigs (49) still account for the vast majority of China's existing active drilling rig fleet (54). This dominance reflects the historically limited opportunities for international oil companies to participate in China's offshore oil and gas development.
New Signings
However, in recent years, the number of MODUs owned by Chinese shipowners other than state-owned oil companies (including some shipyards) has increased. The existing fleet size is 14 units, with 32 units on order. Supported by government policies, Chinese shipyards actively expanded into the market during the boom period of the offshore engineering market and began to enter the high-value offshore equipment manufacturing sector. This process has been driven by new entrants into the drilling rig market (mainly from China and other Asian countries) and Chinese financing and leasing companies. However, in the current difficult market environment, it is becoming increasingly difficult to secure charters for these rigs, and the possibility of asset resale is also low.
Perhaps the more complex challenge comes from the 44 drilling rigs currently on order at Chinese shipyards for foreign shipowners. About 90% of these rigs are nearly completed. Although the ownership of some rigs is unclear, many are currently or will likely become shipyard assets, with the original shipowners, who only paid a small down payment, leaving the scene. This could lead to a further increase in the drilling rig fleet owned by Chinese shipowners.
Transfer Window to Open?
Although Chinese shipyards currently own a certain number of mobile drilling rigs, in the long run, it is difficult for them to truly become shipowners operating fleets. So, are there any solutions? Foreign shipowners are unwilling to purchase these rigs at the current shipyard prices, so more complex solutions may need to be discussed, such as through state-owned oil companies or financing and leasing companies to help acquire assets or sign charters. For example, CIMC Raffles The first D90 semi-submersible drilling rig built has been delivered to a Chinese financial institution and leased and operated by CNPC's Offshore Engineering Company. Other drilling rigs may eventually be operated by state-owned oil companies, but their capacity to take over will be limited by the current market environment. In addition, these rigs may still be resold or subleased to foreign shipowners, such as a jack-up drilling rig currently operating in the Middle East.
Therefore, Chinese shipowners owning drilling rig fleets are no longer limited to the three major state-owned oil companies. The new entrants are mostly Chinese shipyards, who initially had no intention of becoming shipowners when they entered the offshore rig construction market, but now have to remain in the game as shipowners. Finding solutions for these undelivered rigs will take time. Although the final solution is highly uncertain, China's mobile drilling rig fleet may grow further as a result.
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