Demand to boost rig building industry in the Middle East

The young Middle East rig-building industry is set to expand rapidly helped by the fast increasing demand for rigs across the world and rising rig charter rates, said industry players in the region.

Demand for mobile offshore drilling units (MODUs) continues as record oil and natural gas prices and rising energy demand give operators ample incentive to drill for more oil and gas reserves.

As of late June this year, 140 MODUs were under construction, 32 on order, and 11 planned worldwide, and jackups, with 84 units, continue to comprise the bulk of the rigs under construction, on order, or planned.

The remainder includes 52 semis, 43 drillships, and four tender rigs.

"The global demand for rigs presents plenty of opportunities to the rig building industry in the region, which is growing faster," said Peter Convery, President and Chief Executive Officer of Maritime Industrial Services (MIS).

"We are the pioneers of rig building in the market, but we foresee plenty of opportunities for the region in this sector. The company is gearing up for the expected increase in global demand for rigs," he said.

MIS recently got contracts worth $335 million (Dh1.2 billion) for the design and construction of two offshore jack-up drilling rigs for Mosvold Middle East Jackup (Meju) and the contract is expected to boost the region's profile as a rig-building destination for global companies.

With this deal, MIS is now positioned with a mid-2008 confirmed order backlog of $480m, an increase of $110m from the same period last year, excluding the two Orion rigs subsequently deleted from backlog.

MIS made history in December 2007 when it successfully launched the first offshore jack-up drilling rig to be built in the Middle East, the SeaWolf Oritsetimeyin.

Early this year, it officially named another rig, Seawolf Onome, both built at MIS' Sharjah shipyard under a $254m contract for SeaWolf Oilfield Services Limited, a Nigerian drilling company.

"We expect the interest in our new-build programme to continue over the next few years and we are continually looking for opportunities to expand our yard facilities by seeking out ideal locations in the UAE," added Convery.

The international offshore rig sector has experienced several years of sustained growth on the strength of high global demand and restricted supply of suitable and available rigs.

Day rates have risen to some of the highest levels ever. Future prospects for the offshore rig sector look to be positive in the near term, although current new-building orders may put pressure on day rates in the near future.

Currently, charter rates for deepwater drilling rigs are moving close to $700,000 per day.

High demand for exploration and development drilling in deep waters, coupled with the tight supply of rigs for 2009, means owners can continue to raise their rates and some feel the next hurdle will be breeched.

The availability of deepwater rigs has decreased significantly and there is very limited capacity available for 2009 as well as 2010.

As a result, day rates for term contracts are now exceeding $600,000 and approaching $700,000, according to analysts.

Some international brokers think rates could tip over $700,000 for the most sophisticated rigs still in the market. The GCC is investing heavily in a number of offshore oil and gas exploration projects to the tune of $60 billion in the next three to four years. The new projects are meant to add oil and gas production capacity. This investment in more offshore projects is causing an unprecedented demand for rigs and workboats of all types.

Roy Mosvold, Chairman of Meju, said most of the Middle East-based companies would start shifting their attention to the region to address the demand for more rigs in the market.

"The Middle East is the fastest-growing jack-up market and we look forward to developing our relationship with regional rig building companies as we address the demand for more new rigs. We see this trend being adopted by other Middle East-based companies involved in offshore business in this market," he said.

MIS currently has a 200,000 square metres shipyard in Sharjah and has invested heavily in the local infrastructure to help address regional demand.

It is benefiting from the shortage in capacity in the international shipyards in areas such as Singapore.

Follow Emirates 24|7 on Google News.