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Economics Of Rig Scrapping

The current downcycle in offshore drillers has been brutal in a sense that a large portion of their fleet has become economically obsolete. A ferocious investment cycle over the past four-five years has resulted in an unprecedented amount of newbuild drillships and floaters hitting the marketplace. Unlike in previous cycles, a significant number of newbuilds were ordered on speculation, i.e. without a long-term contract to back up the construction of the rig. Industry was faced with an oversupply problem in early 2014, but the oil prices were still high and most offshore drillers felt there would be an increased demand in the number of floating units necessary for oil operators. However, as oil price began its steep descent in June of 2014, drilling companies were hit with a double whammy - more supply and less demand.

During previous downturns, companies reacted to cyclical downturns by cold stacking rigs in hopes… Read More …