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Order Placement for Drill Ships on a Rapid Decline
Shipbuilding Industry
Order Placement for Drill Ships on a Rapid Decline
  • By matthew
  • September 23, 2013, 08:59
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The global drill ship market is shrinking this year to drag down the profits of major Korean shipbuilders. The order quantity and unit cost are all declining at the same time. 

According to industry sources, Korean shipbuilders have won nine drill ship contracts since the beginning of this year, which is approximately one half of last year’s total at 17 and one-third of the volume they recorded in 2011. Daewoo Shipbuilding & Marine Engineering has won four contracts, and Samsung Heavy Industries has obtained five. The problem is that the market prospect is not bright for the rest of this year. 

Besides, the decrease in the unit cost is putting more and more pressure on the companies. The level of the price remained over US$600 million during the first half of 2013, but has dipped below US$500 million in the latter half. In particular, Samsung Heavy Industries won two drill ship contracts in July from Seadrill Draco at the price of US$1.04 billion, so the price per vessel hit a record low in the history of the local industry. “If the unit cost is around US$500 million, the margin rate is estimated to be about 5%,” said an industry source, adding, “The percentage used to be over 15% in the recent past.”

Industry experts are attributing the market contraction to the current change in the pattern of petroleum production. Until recently, oil price increases and undersupply drove up the demand for drill ships, but offshore petroleum production is declining these days, whereas onshore oil production is on the rise. Technological development has increased production capacity per unit of equipment to lower the demand for oil manufacturing machinery as well. 

Under the circumstances, the drill ship charter fee is on a downward spiral as well. Drill ships are run on a charter basis in most cases. According to the data of Rigzone, a drilling equipment site, the daily charter fee for deep-sea drill ships is at around US$479,000 on average nowadays. It has fallen by over 12% year on year from approximately US$550,000. 

Furthermore, the stock prices of global drill ship companies and drilling package manufacturers are moving sideways this year. As of last week, the stock prices of Vantage Drilling, ENSCO, and Transocean have fallen by 3.2%, 6.0%, and 3.9% each. Although those of NOV and Noble Drilling have gone up 12.0% and 8.4% compared to the beginning of the year, the rates of increase fall short of that of the Dow Jones Index at 15%. “The drill ship market is closely connected to crude oil production trends, and it cannot be denied that the current environments are far from optimistic,” said a securities analyst, continuing, “It seems that things will not turn better for the time being.”