Aramco suspends ops for Borr and Shelf Drilling rigs for up to a year

Two offshore drilling contractors, Borr Drilling and Shelf Drilling, have each received notices of temporary suspension of operations for one of their jack-up rigs working for Aramco, Saudi Arabia’s energy giant. This has led to two more rigs being pulled from their current assignments on top of the ones that received such suspensions earlier this year, narrowing the rig pool even further in the Middle East.

The most recent temporary suspension of operation sent to Borr Drilling is for the Arabia II jack-up rig, which operates in Saudi Arabia. While the temporary suspension is expected to last up to 12 months, its start date has not yet been confirmed by Aramco. The rig, transported to Saudi Arabia together with the Arabia I jack-up in September 2022, was slated to kick off its maiden contract with Aramco in October 2022.

The 2019-built Arabia II jack-up features a KFELS B Class design. The rig’s deal with the Saudi giant was scheduled to end in October 2025 unless extension options were exercised. The latest suspension comes months after Borr Drilling also received such a suspension for the Arabia I jack-up rig. The rig owner has since secured a four-year contract with Petrobras in Brazil for this rig, with a four-year unpriced option. The deal will start in Q1 2025. 

The 2020-built Arabia I jack-up rig, just like Arabia II, is of a Keppel FELS B Class design and can accommodate 150 people. With a maximum drilling depth of 30,000 ft, the rig can work in water depths of 400 ft. 

On October 30, 2024, Shelf Drilling received a notice of suspension of operations for the High Island IV jack-up rig in Saudi Arabia, months after the firm got such notices for four other jack-up rigs. According to the rig owner, global jack-up market utilization reached 95% in January 2024 but is now expected to fall below 90% due to multiple rounds of contract suspensions in the Middle East during 2024.

The offshore drilling player claims that these suspensions have created short-term day rate pressure, as contractors continue to redeploy many impacted rigs to other markets. The company continues to see incremental jack-up demand in certain regions, particularly in West Africa, thus, it believes utilization will stabilize and improve in 2025. The firm landed a multi-year contract in West Africa for one of the jack-ups suspended earlier this year.

The rig began operations in late October 2024, thus, Shelf Drilling is confident in its ability to secure other opportunities for its rigs with a return to service by the middle of 2025. While explaining that Brent crude oil prices, which are the key driver in the demand for shallow water drilling activity, averaged $81 per barrel during the first ten months of 2024, the firm underlines that these are currently trading around $75 per barrel.

Shelf Drilling elaborates that global oil demand for 2025 is expected to grow at a lower rate than previously anticipated due to a downgrade in forecasts for consumption in OECD-developed economies. In addition, the rig owner mentions the OPEC+ cartel’s willingness to support oil markets with extensions to previously announced and agreed production cuts as factors that impact drilling activity alongside any escalation in geopolitical tensions, as this could create upward pressure on crude oil prices in the coming quarters.

These are not the only rig suspensions issued by Aramco, as the company went on a rig suspension spree earlier this year, as explained by Westwood Global Energy Group’s Teresa Wilkie, Director of RigLogix, a few months ago, when she noted that Saudi Aramco’s ambitious post-Covid jack-up fleet expansion program, in which the operator looked to increase its fleet size from approximately 49 jack-ups in June 2022 to 90 in just two years, seemed “a daring feat.”

By March 2024, the Saudi Arabian National Oil Company (NOC) almost met its target with 89 jack-ups at work after awarding 247.8 years of contract backlog during the period from January 2022 to December 2023, with the majority of awards being three-to-five-year deals, and some even as long as a decade. A plot twist came in January 2024, when Saudi Arabia ordered Aramco to halt its oil expansion plan.

The Saudi giant was told to stick to a target of a maximum sustained production capacity of 12 million barrels per day (bod), 1 million bpd below a target announced in 2020. This led to several rig suspensions a few months later, equating to 22 jack-ups across eight contractors by July 2024. In line with this, Advanced Energy Systems (ADES), which provides Aramco with its largest fix of jack-ups at 33 units in total, was informed five rigs would be suspended.

China Oilfield Services Ltd (COSL) and Shelf Drilling had jobs for four units apiece paused out of nine; Saipem received suspensions for three out of seven units; Arabian Drilling also had assignments for three units placed on hold out of nine on hire; and Borr Drilling, Egyptian Drilling Company (EDC), and ARO Drilling were notified of one suspension each a few months ago.

Wilkie elaborated that rig suspensions decreased the working utilization of Aramco’s jack-up fleet from 100% in March to just 86% at the end of June and was anticipated to hit 80% by the end of July 2024, when the remaining rigs begin their suspensions. As a result, global marketed working utilization dropped from 86% to 82% between March and July 2024. Most of the suspended rigs have found work elsewhere since then.

While highlighting that the total remaining term of the suspended contracts came to approximately 54 years of backlog or 66 years including options, Wilkie pointed out: “So where could these remaining idle rigs potentially end up, should their managers choose to bid them elsewhere? RigLogix records a total of 32 jackup requirements at a full tender or direct negotiation stage, that are due to begin in the next year should they move ahead. India, Southeast Asia and Africa appear to be offering up the lion’s share of potential demand days during this period.

“However, some rumours suggest that due to this new additional supply of jackup capacity in the market, we may see some operators that currently have active tenders out in the market look to cancel and re-tender as they may potentially be offered lower dayrates in the current environment. However, the upward trajectory of dayrates appears to be unaffected year-to-date.”