deep low high

Deepwater rig rates jump on lower crude prices
BMirror/12.08.9

CHICAGO—Rental rates for deepwater drilling rigs continue to surge as a worldwide shortage of vessels used to search the oceans for oil outweighs the biggest drop in crude prices in a quarter-century.

Transocean Inc., the world’s largest offshore oil driller, agreed to lease its C. Kirk Rhein Jr. rig to Burgundy Global Exploration Corp. for $550,000 a day, a 52-percent increase from the previous rate, according to a public filing on Friday.

Burgundy’s lease commences in February, after South African energy producer Sasol Ltd.’s current contract to use the rig off the coast of Mozambique expires, Transocean said. Burgundy, based in Makati City, Philippines, plans to search for oil in Filipino waters.

“It is impressive,” Brian Uhlmer, an analyst at Pritchard Capital Partners Llc. in Houston, said over the weekend in a note to clients. The rate makes Uhlmer “more comfortable” about deepwater rig operators’ prospects for maintaining profits despite lower crude prices.

The global credit crunch is a boon for rig operators such as Transocean, because the lack of financing is preventing smaller rivals from following through with plans to build new vessels. As many as one-fifth of the new deepwater rigs on order in shipyards from South Korea to Norway will be canceled or delayed because of capital constraints, Uhlmer said in October.

Demand for vessels that can explore more than 9.7 kilometers below the sea surface and hundreds of miles from shore has risen faster than the world’s supply of the most-sophisticated drill ships, pushing day rates to a record.

Royal Dutch Shell Plc., Anadarko Petroleum Corp. and other energy producers require rigs that can operate year-round in rough seas and shelter more than 100 employees for weeks at a time to find crude in places such as the Atlantic Ocean off the coast of Angola and the Gulf of Mexico.

Offshore exploration yielded the Western Hemisphere’s biggest discovery in three decades when Rio de Janeiro-based Petroleo Brasileiro SA in 2006 found the Tupi field, home to the equivalent of 5 billion to 8 billion barrels of oil.

Transocean also announced higher rental rates on Friday for its GSF Adriatic VI rig off the coast of Gabon and the GSF 103 in Egyptian waters. Each $50,000 increase in daily rig rates adds $3.21 to Transocean’s full-year per-share earnings, according to JPMorgan Securities Inc.

Transocean, which is based in the Cayman Islands and run from Houston, is expected to boost 2008 profit by 47 percent to $4.61 billion,

Transocean had a $41.1-billion backlog of orders as of September 30. The company signed a record $652,000-a-day lease agreement with Italy’s Eni SpA in July for the Deepwater Pathfinder ship, followed by a deal at an identical rate with Exxon Mobil Corp. in October for a vessel yet to be built.

There were 3,448 rigs operating worldwide at the end of November, 9.1 percent more than a year earlier, according to a count by Baker Hughes Inc. The figure includes offshore and onshore drills sites. (Bloomberg)