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Maersk Drilling to Spend Much as $6 Billion on Oil Rigs

Maersk Drilling, the oil-rig operating unit of Denmark’s largest company, plans to spend $4 billion to $6 billion on new platforms, with the first of those orders being placed as early as this year.

The unit of A.P. Moeller-Maersk A/S plans to buy six to eight rigs to “expand into a more significant player,” Chief Executive Officer Claus V. Hemmingsen said in an interview yesterday in Beijing.

Maersk Drilling, which has about 3 percent of the offshore market, has expanded its fleet as part of a long-term target to increase its capacity by 50 percent. The company, based in Copenhagen, is already spending $3.8 billion to build six platforms, with deliveries expected as early as next year, according to Hemmingsen. The company may start placing additional orders at the end of 2012 or in 2013, he said.

“We still believe in the market,” said Hemmingsen, who is also a member of A.P. Moeller-Maersk’s executive board. “Oil production is declining rapidly and in order to meet demand, there’s a lot of oil that needs to be found and produced in a very short time frame.”

Maersk Drilling, which celebrates its 40th anniversary this year, operates 26 platforms that include six ultra-harsh environment jack-ups, six further jack-ups, four semi- submersibles and 10 drilling barge rigs. Jack-up rigs have extendable legs while semi-subs are rigs that float and are partly filled with water for stability.

The company spent $3 billion in the four years through 2010 to increase the size of its fleet to 26 from 20.

$600 Million Each

Hemmingsen said in August that the company wouldn’t order something “tomorrow or in the near future” because platforms were “very expensive.”

Yesterday, he said prices have leveled off. “The cost of rigs have come up a lot over the last couple of years, but currently prices seemed to have stabilized, even though at a very high level,” he said. “There’s a limit to how high prices can go.”

The price of oil rigs have tripled since 2003 and deepwater rigs now cost between $600 million and $650 million to build, according to Hemmingsen. Maersk Drilling’s deepwater semi-subs operate at water depths of as much as 3,000 meters (9,800 feet), according to the company’s website.

“Deepwater is very promising,” said Hemmingsen, who took over responsibility for Maersk Drilling in 2005. “We expect to be ordering for 2016, 2017 and onwards. Since we already have a new building program, we’re not in an urgent need.”

Samsung Heavy Industries Co. (010140) is building four deepwater drillships for Maersk Drilling, which has an option for another two at the same price. Hemmingsen said Maersk Drilling wouldn’t exercise these options that expire at the end of the month.

Keppel FELS Ltd. is also building two ultra-harsh environment jack-ups for the company.

Chinese Shipyards

Maersk Drilling’s rigs are fully contracted for this year and about three-quarters covered for 2013, Hemmingsen said. Day rates, or the daily cost of rig rental, are about $500,000 for deepwater platforms and above $600,000 for those operating under special conditions, he said.

“Deepwater market rates are very firm,” he said. “Of course it’s helped by the oil price and the activity that the oil price spurs.”

Demand is strongest in the Gulf of Mexico, Brazil and West Africa, Hemmingsen said. China isn’t as “busy” compared to those regions, and doesn’t have needs for the sophistication offered by rigs that the company operates, he said.

While China isn’t a potential market for Maersk Drilling in the near future, the company has been in contact with its shipyards regarding rig manufacturing, Hemmingsen said.

“They are building some good rigs,” he said. “Certainly there’s a chance that one day, they’ll be making our rigs.”

Retirement Wave

The only risk that the rig industry faces in the next couple of years is a collapse in the world economy and plunging oil prices, Hemmingsen said. He said he doesn’t expect either of these things to happen.

The bigger challenge is for the industry to replace the skilled personnel needed to operate modern platforms.

“There’s a retirement wave coming,” Hemmingsen said. “We need to educate people and we are very behind as an industry,” he said.

At least 20,000 new workers are needed in the industry in the next four to five years, 3,000 of whom Maersk Drilling wants to employ, according to Hemmingsen.

“There’s a career opportunity in oil drilling,” he said. “It’s not the dirty, heavy business it used to be. It’s pretty clean, it’s very safe and everything’s worked by a joystick,” he said.

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at bchua14@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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