The deepwater mobile offshore drilling rig (floating rigs) market is not always the best proxy for the offshore supply vessel market, but the two are currently trending in similar manner. The floating rig market is corroborating the dynamics of the OSV market with valuations and charter rates moving up at a rapid pace. Also, same as with the OSV market, no new builds are expected to be ordered any time soon and floating rigs that were stacked are being reactivated.

The demand for floating rigs is outstripping the supply across the entire global market. Similar to the OSV market, no new floating rigs have been ordered in nearly 10 years. The few rigs that were under construction when the market downturn occurred have sat in a state of semi-completion for years. Those floating rigs are now being completed as the owners stand to make tremendous returns based either on rising charter or the sales price to a new owner. There are three such rigs that will be completed within the next six months. Furthermore, the values of these rigs, some of which were built for around $750 million, cratered in value to less than $100 million but are now commanding sales prices in excess of $500 million. Floating rigs that have been stacked are being reactivated even with costs exceeding $125 million per reactivation. The pool of reaming stacked sixth and seventh generation rigs is dwindling and yet there is no expectation for any new builds.

The capital required to build a new, sate of the art floating rig will very likely exceed $1 billion. Again, the similarities to the OSV market are striking. Current market charter rates are far from supporting the cost of new construction and thus the demand for the newer, existing rigs will continue to drive charter rates higher. Until charter rates reach the cost of new construction, there will not be any new floating rigs ordered.

The market dynamics continue to improve in favor of not just floating rig owners but also OSV owners. I remain very bullish on the outlook for our industry.