5 reasons why drillships is top choice over semi-subs

Drillers seem to prefer drillships over semi-subs as evident from recent order activities.

Nomura investigated the seeming preference drillers have shown for drillships over semi-subs as evident from the vigorous order activity for drillships over semis. 

Steep cost decline stimulating drillship orders

Drillship cost down from the peak of 2007 while semi-sub costs are up Given the slump in shipbuilding and excess capacity at most yards, the cost for drillships has witnessed a deterioration. For drillships ordered in 2012, the cost averaged USD 642mn, down 12% from the peaks of USD731mn in 2007. In contrast, semi-submersible build cost for units ordered in 2012 averaged USD726mn (including higher priced order for five semi-subs by Sete Brasil to Keppel), up 25% over USD580mn in 2007. Even excluding the higher priced semi-sub order from Sete Brasil, the cost is up 8.5% over 2007 levels.

2011 drillship orders largely speculative

The surge in semi-sub orders in 1H12 vs. 2011 Though new drillship orders far exceeded semi-subs ordered in 2011, 2012 YTD has been comparably better for semi-subs with 11 new orders (including Keppel’s five rig
order from Sete Brasil) against 13 drillship orders. The drillship to semi-subs ordered ratio for 2012 ytd stands at 1.2x, closer to our estimated mean of 1.3x.

Lower cost, rising dayrates = better economics for drillships

Besides lower costs, we believe that the surge in drillship new orders in 2011 was also driven by improving overall economics. According to data from ODS-Petrodata, drillship dayrates exceeded semi-sub dayrates by an average of 13.7% in 2009-11. Coupled with falling vessel prices, this translates to improving economics for drillship operators.

Robust demand for new advanced semi-subs

The utilisation for new advanced semi-subs built in 2006 or later has been close to 100% since Jan-11, thus further boosting our confidence that the semi-sub still remains the preferred platform when it comes to stability and harsh weather operations. Overall, semi-sub fleet utilisation, too, remains high at 88% for July 2012, while dayrates have
witnessed a sequential improvement since March 2011.

Semi-sub fleet age to drive demand

Replacement demand for semi-subs remains strong Given rising demand for semi-subs and tight demand-supply situation for new rigs, we believe that the replacement of older semi-subs with newbuilds will be a key factor
driving new order flows. Unlike drillships which have a predominantly young fleet, the fleet for semi-subs is significantly older with 120 out of currently operating 218 semi-subs being above 25 years of age.