With 35 out of 36 rigs contracted, Shelf Drilling’s backlog stands at $2.6 billion

Offshore drilling contractor Shelf Drilling has revealed higher revenue for the second quarter of 2023, compared to the previous quarter, driven by higher day rates and effective utilisation across its fleet, as seven rigs started new contracts and extensions in India, Saudi Arabia, and West Africa.

Shelf Drilling is not alone in reporting higher day rates, which resulted from the upcycle, currently affecting the offshore drilling market fundamentals. The rising rig demand and tightening rig supply are fueling the increase in day rates. This trend is confirmed by the rig owner’s peers: Diamond Offshore, Noble, Transocean, and Valaris. Shelf Drilling secured jack-up deals, Transocean and Diamond Offshore drillship and semi-submersible gigs while Valaris and Noble got drillship, semi-sub and jack-up assignments.

Looking at the offshore drilling players’ results for 2Q 2023, Shelf Drilling’s contracted backlog was $2.6 billion with 35 of 36 rigs under contract representing a marketed utilisation of 97 per cent. On the other hand, Diamond Offshore’s total fleet utilisation was 70 per cent and revenue efficiency was 95.8 per cent; Transocean’s total fleet utilisation was 54.7 per cent and revenue efficiency was 97.2 per cent; Valaris’ total fleet utilisation was 65 per cent and revenue efficiency was 97 per cent; and Noble’s marketed fleet utilisation was 76 per cent.

Shelf Drilling’s total revenues for the three months ended on 30 June 2023 were $214.2 million, an increase of $30.8 million compared to the three months ended on 31 March 2023, primarily due to $19.6 million related to higher effective utilisation across the fleet and $12.6 million related to higher average earned day rate. The company’s total revenues for the six months ended on 30 June 2023 were $397.6 million, which represents a jump of $90.9 million compared to the same period in 2022 due to revenues from the six rigs acquired in 2022 and higher average earned day rates, mainly in Saudi Arabia and Nigeria during 2023.

Furthermore, the rig owner’s total operating and maintenance expenses for 2Q 2023 were $119.9 million, or 56 per cent of total revenue, compared to $129.2 million, or 70 per cent of total revenue, in 1Q 2023. This consisted of $107.6 million in rig-related expenses and $12.3 million in shore-based expenses, compared to $116.8 million and $12.4 million, respectively, in 1Q 2023.

Shelf Drilling points out that its total rig-related expenses decreased by $9.2 million in the three months ended 30 June 2023 compared to the three months ended 31 March 2023, primarily due to $12.7 million lower maintenance and shipyard expenses for the three rigs that started contracts in May/June 2023 and $0.9 million lower operating costs for the rigs acquired in 2022, partially offset by $4.2 million higher expenses mainly due to one rig that commenced operations in Saudi Arabia in April 2023 and one rig preparing for a new contract that started in Italy in August 2023.

The company’s total operating and maintenance expenses for the six months ended 30 June 2023 were $249.1 million, or 63 per cent of total revenue, compared to $174.5 million, or 57 per cent of total revenue, in the six months ended on 30 June 2022. These expenses consisted of $224.4 million in rig-related expenses and $24.7 million in shore-based expenses. In the six months ended 30 June 2022, these same expenses were $156.6 million and $17.9 million, respectively.

The firm explains that total rig-related expenses increased by $67.8 million in 1H 2023 compared to the same period in 2022 due to $45.8 million higher operating costs for the six rigs acquired in 2022 and rigs that commenced contracts in 2023, $14.4 million higher maintenance and shipyard expenses and $7.6 million higher operating costs for rigs that were not operating for the full periods. Shore-based expenses increased by $6.8 million in 1H 2023 compared to the same period in 2022, primarily due to higher support costs associated with the rigs acquired in 2022.

Shelf Drilling’s depreciation expense increased by $1.8 million in 2Q 2023 compared to 1Q 2023 due to increased depreciation for the six rigs acquired in 2022, of which one was placed into operation in 2Q 2023. However, depreciation expense for 1H 22023 increased by $10.9 million primarily due to $10.1 million higher depreciation for the rigs acquired in 2022.

Moreover, the total amortization of deferred costs increased by $1.3 million in the three months ended on 30 June 2023 compared to the three months ended on 31 March 2023, primarily related to higher amortization of contract preparation expenses for four rigs which commenced contracts in the second quarter of 2023, partially offset by lower amortization on one rig that completed its contract in early 2023.

The $3.7 million decrease in amortization of deferred costs in 1H 2023 compared to the same period in 2022 was primarily related to lower amortization on rigs that completed contracts in late 2022 or early 2023, partially offset by higher amortization of contract preparation expenses for three rigs in India, Thailand, and West Africa in the 2023 period.

The company’s general and administrative expenses were relatively unchanged in 2Q 2023 compared to 1Q 2023. These expenses increased by $3.7 million in the six months that ended on 30 June 2023 compared to the same period in 2022 primarily due to higher personnel costs and certain one-time costs incurred for the recently acquired rigs in the 2023 period.

Shelf Drilling’s net cash provided by operating activities increased by $14.7 million during 1H 2023 compared to the same period in 2022 primarily due to an increase in revenues when compared to the prior year period combined with the receipt of mobilisation fees in the current period, partially offset by an increase in deferred cost expenditures for rigs undergoing contract preparation projects.

During 1Q 2023 and 2022, the firm made cash payments of $66.1 million and $50.9 million, respectively, each in interest and financing charges included in other operating assets and liabilities. Shelf Drilling also made cash payments of $17.3 million and $13.7 million in income taxes included in other operating assets and liabilities during 1Q 2023 and 2022, respectively.

The company’s net cash used in investing activities increased by $6.4 million during 1Q 2023 compared to the same period in 2022 primarily due to $47.6 million higher capital expenditures for reactivation and shipyard projects ahead of long-term contracts with customers during 1H 2023, partially offset by $41.9 million lower advance payments for property and equipment mainly for the $37.5 million advance relating to the acquisition of the five jack-up rigs from Noble and $6.0 million for the purchase of the Shelf Drilling Victory during 1H 2022.

The firm’s capital expenditures and deferred costs were $143.4 million and $56.0 million in 1H 2023 and 2022, respectively. The increase of $87.4 million was primarily due to $54.6 million higher regulatory, capital maintenance and contract preparation costs primarily for three rigs that started new contracts in 2Q 2023 and for two rigs beginning contracts in 3Q 2023, $26.8 million higher rig acquisition expenditures primarily related to the rig readiness expenditures for the Shelf Drilling Victory acquired in 3Q 2022 and $6.0 million higher spending in fleet spares, transition costs and other.

The Shelf Drilling Fortress (former Noble Sam Hartley) jack-up rig recently secured a two-well firm contract plus four optional wells with CNOOC in the UK. This contract is expected to start in September 2023 and the value for the firm period is around $17 million.

The 2014-built Shelf Drilling Fortress jack-up rig is of Friede & Goldman JU-3000N design and can accommodate around 150 people. With a maximum drilling depth of 35,000 feet, it is capable of working in water depths of 400 feet.

The Shelf Drilling Mentor rig secured a one-well firm contract with IBOM Upstream in Nigeria. The contract commenced in July 2023 and is expected to end in August 2023. The 2014-built Shelf Drilling Mentor jack-up rig is of LeTourneau Super 116-E design and can accommodate around 120 people. It is capable of working in water depths of 350 feet and its maximum drilling depth is 30,000 ft.

The Adriatic I jack-up rig kicked off its 90-day contract in Nigeria in May 2023. The 1981-built Adriatic I jack-up rig had its last upgrade in 2014. This rig is of a Marathon LeTourneau 116-C design. The rig can operate in water depths of up to 350 ft and can accommodate 120 people.

The Harvey H. Ward jack-up rig began its five-year contract with Saudi Aramco in Saudi Arabia in June 2023. The 1981-built Harvey H. Ward jack-up rig had its previous upgrade in 2011. This rig is of a Friede & Goldman L-780 Model II design. It is capable of operating in water depths of up to 300 ft and can accommodate 108 people.

The Shelf Drilling Scepter jack-up rig started its two-year contract with Chevron in Nigeria in June 2023. The 2008-built Shelf Drilling Scepter jack-up rig is of a Keppel FELS Super B Class design. It had an upgrade in 2019. This rig can operate in water depths of up to 350 ft and can accommodate 150 people.

The Shelf Drilling Resourceful jack-up rig commenced its three-year contract with Eni in Italy in August 2023. The 2008-built Shelf Drilling Resourceful rig had its latest upgrade in 2017 and is of LeTourneau Super 116-C design. With a maximum drilling depth of 30,000 ft, the rig can accommodate 118 people and can operate in a water depth of 350 ft.

The Trident VIII jack-up rig embarked on its one-year contract with Chevron in Nigeria in August 2023. The 1981-built Trident VIII rig is of a Modec 300 C35 design and had its latest upgrade in 2018. With the ability to operate in a water depth of 300 ft, the rig’s maximum drilling depth is 21,000 ft.

The Key Singapore jack-up rig completed its contract with Cairn in July 2023 and is currently undergoing contract preparation for its three-year contract with ONGC India expected to begin in October 2023. The 1982-built Key Singapore rig has its latest upgrade in 2015 and is of MLT 116C design. With a maximum drilling depth of 25,000 ft, it can operate in water depths of 350 ft.

The Shelf Drilling Perseverance jack-up rig completed a contract with IOG in the UK in July 2023. The rig is now available and marketed for opportunities worldwide. The 2008-built Shelf Drilling Perseverance rig is of Friede & Goldman JU-2000E design. It can accommodate 118 people and can operate in water depths of 400 ft. The rig’s maximum drilling depth is 30,000 ft.

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