Atwood Oceanics Inc. (ATW) is putting the brakes on building more ultra-deepwater oil and natural gas drilling rigs because of waning customer demand as it wraps up a $4.5 billion, six-year expansion plan.
The rig owner let an option to order a new vessel from Daewoo Shipbuilding & Marine Engineering Co. expire last month, Chief Executive Officer Rob Saltiel said in an April 4 interview at his company’s new headquarters in Houston. Atwood won’t build any more rigs while it has two drillships under construction without contracts for work.
“To take a pause now, given the market uncertainty, makes good sense,” Saltiel said. “This is not the end, by any means, of Atwood’s growth strategy.”
Rig contractors are expecting less demand for the vessels that drill in water ranging from 1,000 feet (305 meters) to more than two miles (3.2 kilometers) as a glut of new supply hits the market at the same time customers are cutting budgets. The rig owners responded to rising demand in the past few years with the biggest batch of orders since the advent of deep-water drilling in the 1970s.
With 11 new ultra-deepwater rigs entering the market this year and another 16 next year, the highest dayrates for the world’s most expensive drilling vessels are expected to be near $520,000, Charles Minervino, an analyst at Susquehanna International Group, wrote in an April 2 note to investors. Two years ago, Ole Slorer, an analyst at Morgan Stanley, projected rates climbing to as much as $714,000 that year.
Atwood, which will have added nine new rigs between 2011 and 2015, would “potentially” look at building another rig after it signs a contract for one of its two available rigs, which roll out of the shipyard next year, Saltiel said. The company will also use the softer market environment to consider acquiring a rig or a company that owns rigs, he said.
“But those have to be opportunistic and compelling, given the attractiveness of our organic build program,” he said.
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