Rig construction of third out of 20 planned newbuilds set in motion with ARO-IMI deal

As the ink dries on the contract between International Maritime Industries (IMI) and ARO Drilling, a 50/50 joint venture between Valaris and Aramco, it marks the opening of the construction chapter for a third jack-up in a series of 20 planned newbuild Saudi-operated and manufactured offshore rigs, which ARO intends to deploy to meet Aramco’s drilling demands.

ARO Drilling and Aramco signed an agreement in 2018, which was expected to enable the construction of 20 jack-up units over ten years. IMI, a joint venture between Saudi Aramco, Lamprell, Bahri, and Hyundai Heavy Industries, got picked to build the rigs, based on a design developed in collaboration with GustoMSC and Lamprell. However, the delivery of the first two rigs, originally scheduled for 2022, had to be moved to 2023 because of a delay in the completion of the new shipyard in Saudi Arabia.

Shortly after ARO secured a $359 million term loan with a syndicate of local Saudi Arabian banks in October 2023 to foot the remaining bill for the first two rigs, the naming ceremony for the Kingdom 1 jack-up rig was held in November 2023 at the King Salman International Complex for Maritime Industries and Services.

The rig was expected to start its maiden eight-year contract with Aramco in the fourth quarter of 2023. On the other hand, the Kingdom 2 jack-up rig was slated to be delivered for its inaugural deal with the Saudi oil and gas heavyweight in the first quarter of 2024. The rig’s naming ceremony was held in May 2024.

Thanks to the signing ceremony during the IKTIVA Forum & Exhibition, where Aramco struck 145 deals and memorandums of understanding (MoUs) worth $9 billion, the International Maritime Industries penned an agreement with ARO Drilling to build the Kingdom 3 jack-up rig, which the Saudi yard describes as the first of its kind to be constructed in the Kingdom of Saudi Arabia.

ARO Drilling explains that Saudi Aramco and Valaris do not anticipate contributing additional capital for the newbuild program, supported by a $1.25 billion capital commitment from each shareholder, which ratchets down over time as rigs are delivered. Therefore, Valaris expects the newbuilds to be fully financed through the ARO-generated cash flow and external financing, supported by long-term contracts.

Moreover, ARO, which confirmed its intention to build 20 jack-ups over the next decade, underlines that 75% of the shipyard purchase price for the Kingdom 1 and 2 rigs, based on the LeTourneau 116E design, was financed by a $359 million term loan, which matures in eight years and has a 16-year amortization profile with a 50% balloon payment due at maturity.

“Through the establishment of this platform, we aim to enhance excellence in the maritime industries sector and contribute to the growth of this sector in the Kingdom in alignment with Vision 2030,” emphasized the International Maritime Industries, located in the 12-million square meter Ras Al-Khair, and perceived to be the largest shipyard in the Middle East and North Africa (MENA) region.

The order for the construction of the third jack-up rig comes after multiple rig owners received temporary suspensions of operations in the Middle East last year for one or more jack-ups in their fleets working for Aramco. Aside from Valaris’ ARO Drilling, ADES, COSL, Arabian Drilling, Borr Drilling, and Shelf Drilling were also presented with contract suspensions.

ARO Drilling was among those that got hold of several MoUs during the IKTVA Exhibition, including the partnership with ASMO, which aims to explore value creation opportunities in end-to-end supply chain services, and the collaboration with Seatrium, focusing on the provision of rig maintenance, engineering support, and high-quality parts, as well as exploring the construction of state-of-the-art rigs.

In addition, the drilling player signed MoUs with HMH to address the delivery of innovative well control solutions, comprehensive repair services, advanced digital optimization, and cutting-edge training programs; Sri Energy for the provision of comprehensive repair services, high-quality parts supply, regular pressure testing, certifications, and manufacturing new equipment within Saudi Arabia; and DNV to tackle safety enhancement, regulatory compliance, and environmental performance.

“ARO Drilling recognizes the importance of delivering top-notch operational efficiency while upholding the highest standards of environmental stewardship. We remain steadfast in our commitment to continuous innovation and the implementation of best practices to minimize our ecological footprint,” highlighted the company.

“Through responsible operations and forward-thinking initiatives, we are shaping a sustainable future for generations to come.”