Rig Reactivation - will demand disqualify supply?

ADC were recently recommended by one of the world’s leading Drilling Contractors to participate in an “Expert Call” hosted by UBS Equity Research where the topics of Rig Reactivation and Fleet Utilization were discussed with investors, E&P Companies and Drilling Contractors.

Planning for reactivation

Poor planning has resulted in many recent reactivations coming in 100% above the initial budget and scheduled timeline. The most successful and efficient rig reactivations ADC has been involved with have been a result of detailed planning involving all parties where ADC, the Operator client and the Drilling Contractor outline the reactivation milestones in a transparent, mutually agreed plan.

Poor planning leading to going over budget

Given many of the rigs that are currently stacked and undergoing consideration or actual reactivation were never meant to be deactivated, ADC acknowledge that there is likely to be a steep learning curve regarding the most efficient and cost effective approach to Reactivation and that the industry will acquire more accurate reference points in the coming years as additional rigs are reactivated using experience rather than unproven plans.

In ADC’s experience during recent projects, delays with rig reactivations were due to management, integration and obsolescence of major control systems. A second notable threat is the ability of OEMs to service and deliver on long-lead items due to cutbacks in personnel and service departments during the downturn, whilst also ensuring that the latest parts, equipment and alerts are suitably integrated to be compliant with changes in the industry during the period of stacking.

Rig Generations

It has been observed that there has been a wide disparity in both the interpretation of the stacking philosophy (i.e. warm, hot or ready stacked) but also the risk mitigation taken when preserving the rig in the first place. These stacked rigs are the first generation with integrated control systems with previous generations being less complex mechanically driven rigs that are largely “simpler” because the industry as a whole has experience with reactivating the conventional rigs following the downturns experienced in the ‘80s and early 00’s. Uncertainty around the stacking philosophy or even the risk posed by the stacking location, have both proven to be two of the myriad of challenges faced during reactivation.

What are Operators evaluating during reactivation inspections?

Reactivation Priorities



Understandably, Operator priorities during the evaluations of stacked rigs are operability and functionality of critical path equipment (drilling, well control, station keeping and power management systems). However, when you consider the fact that a number of cold-stacked rigs include 6th generation semi-subs and drillships that were designed with “Non-Blackout” systems that were never designed to be switched off and require robust software management to ensure compatibility with evolving equipment, a whole new area of issues can be unearthed.

Furthermore, crew competency management remains a critical consideration, especially when you take into account that many Drilling Contractors will not have an up-manning plan during the rig tender stage until the rig has a firm contract, while still required to satisfy the Operator that the rig will be crewed by experienced and competent personnel. “Skill Fade” is a real threat and reactivating the drill crew should be a process that commences prior to the crew setting foot on the rig. Rig crew members are being hired for short, single-well projects and are expected to hit the ground running, but many may not have been on a rig in some time or are completely new to a rig.

What fate awaits Cold-Stacked rigs?

The attrition of cold-stacked rigs will help tighten rig utilization figures and the industry can expect to see additional retirements given the rising reactivation costs and reduced budgets allocated to preservation maintenance of stacked assets. Operators increase the risk perception of rigs that have been cold-stacked for more than 2 years, particularly if the Drilling Contractor defers periodic surveys. In the current market, approx. 60% of cold-stacked floaters (29 out of 48) have been idle for in excess of 2 years and are candidates for retirement. These rigs will be at the back of the line for any new contracts and by 2020, will have been cold-stacked for more than 3 years. To date, around 115 floaters have been retired from service.

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