‘Sold out’ Middle East OSV market drives sector consolidation

Other shoe drops

On 27 July, the day after announcing its acquisition of ZMI, ADNOC L&S’s parent, Abu Dhabi National Oil Co (ADNOC), dropped the ‘other shoe’; it announced the award of a contract to ADNOC L&S valued at US$681M for the provision of offshore logistics and marine support services. The ADNOC L&S contract came in the wake of two other substantial contracts, totaling US$2Bn, to ADNOC Drilling for the Hail and Ghasha Development Project. The contracts comprise US$1.3Bn for integrated drilling services and fluids, and US$711M for the provision of four Island Drilling Units.

“Abu Dhabi’s vast gas resources can play an increasingly important role in providing lower-carbon energy”

Overall, more than 80% of the value of the awards will flow back into the UAE’s economy under ADNOC’s successful In-Country Value (ICV) programme and all three of the contracts will cover the Hail and Ghasha drilling campaign for a maximum of 10 years.
The Hail and Ghasha Development Project is part of the Ghasha Concession, which is the world’s largest offshore sour gas development and a key component of ADNOC’s integrated gas masterplan, as well as an important enabler of gas self-sufficiency for the UAE.
Dr Sultan Ahmed Al Jaber, minister of industry and advanced technology and managing director and group CEO of ADNOC said: “These substantial awards mark another important milestone in the delivery of the Ghasha mega-project. They also demonstrate the deep expertise and experience within ADNOC Drilling and the wider group to efficiently deliver complex projects that enable gas expansion, while generating substantial in-country value to drive economic growth and diversification. 
“ADNOC is committed to unlocking the UAE’s abundant natural gas reserves to enable domestic gas self-sufficiency, industrial growth and diversification, as well as to meet growing global gas demand, in line with the UAE Leadership’s wise directives. Abu Dhabi’s vast gas resources can play an increasingly important role in providing lower-carbon energy to meet the demands of today and tomorrow, while the world still relies on hydrocarbons,” said ADNOC.
ADNOC’s gas masterplan links every part of the gas value chain to ensure a sustainable and economic supply of natural gas to meet the growing requirements of the UAE and international markets, through expansion of ADNOC’s LNG capacity. 
Production from the Ghasha Concession is expected to start in 2025, ramping up to produce more than 1.5 billion standard cubic feet per day (scfd) of natural gas before the end of the decade. Four artificial islands have already been completed and development drilling is underway. 
In November last year, ADNOC and its partners awarded two engineering, procurement and construction (EPC) contracts for the Dalma Gas Development Project, within the Ghasha Concession. They also awarded a contract to update the front-end engineering and design (FEED) for the Hail and Ghasha project. The updated design is expected to be completed by the end of the year and will further optimise costs and timing, as well as potentially accelerate the integration of carbon capture.

Rig and OSV demand

“The industry has gone through six years of car crash; now we are in a much better place and the market is improving strongly,” ABC Maritime head of offshore George Horsington told delegates at the Annual Offshore Support Journal Conference in London in June. “The most important thing about the Middle East is Saudi Aramco. It produces 11M barrels of oil per day. Saudi Aramco is on a drive to hire rigs. A drive to hire boats.”

Mr Horsington explained that Saudi Aramco’s strategy has been mid-size anchor handlers, typically 6,000 to 8,000 horsepower, DP2s, and smaller PSVs, less than 3,000 tonnes deadweight. “But this year there was a major move forward when Aramco chartered its first high deadweight PSV,” he said, adding “I believe it came from Seacor. They fixed one of their battery-hybrid vessels into Aramco.” He noted whatever approach Aramco decides to take will drive vessel demand in the Middle East.

Liftboat utilisation

Liftboat utilisation in the region is also tightening. Following the award of a two-year contract with a NOC for one of his company’s K-class liftboats, Gulf Marine Services (GMS) executive chairman Mansour Al Alami noted a fleet utilisation rate of 88%.

“This contract award further reflects an increase in day rate and utilisation levels across the entire fleet, confirming our expectations on a tightening market,” he said. “GMS continues to strengthen its position, with higher levels of utilisation locked in for the year and increasingly into 2023.”

London-listed GMS has a fleet of 13 self-propelled liftboats.

Booming jack-up market

The Middle East is at the centre of a booming jack-up rig market, according to an analysis by Esgian Rig Analytics.

The analysis shows contractors secured 100 jack-up charters between January and March 2022, with the Middle East accounting for most of the growth. Of the 23 jack-up sales recorded by Esgian since January 2022, at least 18 are Middle East buyers, and three of the remaining five rigs are understood to have been sold into the Middle East market.

Ocean Challenger, the asset management company of China’s EPC contractor CIMC Raffles, has entered into a charter contract with Saipem for the jack-up Gulf Driller VII. The rig will be renamed Perro Negro 11 and is scheduled to be deployed to the Middle East by August for modifications, before beginning a campaign for Saudi Aramco by the end of the year.

In June, Saipem secured four new offshore contracts in the Middle East include the engineering, procurement, construction and installation (EPCI) of several offshore jackets, decks, subsea pipelines, subsea composite cables, umbilicals, fibre optic cables and brownfield modifications, with a combined contract value of about US$650M.

“The Middle East is at the centre of a booming jack-up rig market”

Aramco is in the middle of a massive contracting spree, with Westwood Global projecting it to have 78 jack-ups under contract by the end of this contracting round. Seven of those ships belong to rig operator Shelf Drilling, which has agreed to buy the Deep Driller 7 jack-up rig from Indian offshore drilling company Aban Offshore for US$30M.

A Baker Marine Pacific Class 375 design, the 2008-built rig has been renamed Shelf Drilling Victory.

The Dubai-based drilling contractor is actively working to expand its fleet of offshore rigs. To this end, a new subsidiary, Shelf Drilling NorthSea, inked a US$375M deal with Noble Corp in late June to acquire five jack-ups. Nearly all units in the operator’s 30-vessel fleet are currently employed.

From Noble Corp’s end, the sale is intended to remedy any concerns identified by UK antitrust regulator the Competition and Markets Authority regarding the proposed merger between Noble Corp and Maersk Drilling. The deal includes the sale of the rigs Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert and Noble Lloyd Noble and all related infrastructure to Shelf Drilling.

In June, Seadrill was awarded contract extensions for AOD I, AOD III and West Callisto rigs for work offshore in the Middle East Gulf.

The firm term of each contract is three years, with commencement in direct continuation of the current contracts. AOD I, AOD III and West Callisto are now committed till June 2025, December 2025 and November 2025, respectively. The aggregate contract value for the three cantilever jack-up units is approximately US$361M.

The new deal comes shortly after Seadrill landed contracts in the Middle East worth US$404M for West Ariel, West Cressida, and West Leda rigs. The firm term of each contract is three years, with the expected start between Q1 and Q3 2023.