China has become a more important part of the offshore drilling rig sector over the last decade, both as an owner and builder. By the start of June, there were 86 Chinese-owned Mobile Offshore Drilling Units (MODUs) in the fleet, 9% of the global total, and a further 38 Chinese-owned units under construction. There were also another 44 MODUs owned by international owners on order at Chinese yards.

The Great National Team

China’s oil and gas projects have traditionally been led by the three national oil companies (NOCs) CNPC, Sinopec and CNOOC. CNOOC is particularly dominant in offshore E&P, and its subsidiary, COSL, owns 44 MODUs. In total, NOCs accounted for 83% of the Chinese-owned rig fleet at the start of June. While a large number of NOC-owned MODUs are currently inactive, NOCs still account for the vast majority of active Chinese-owned rigs (49 of 54). This dominance reflects the historically limited opportunities for international players to operate in China.

New Signings

However, the number of MODUs owned by Chinese companies other than NOCs (including some builders) has risen, with 14 in the fleet and 32 on order. There was enthusiasm amongst yards during the offshore boom, encouraged by the government, to diversify into high-value offshore structures. This process was supported by a mix of speculative new entrants to rig ownership based in China and elsewhere in Asia, plus support from Chinese leasing companies. Finding employment for these units is more difficult in the now-weak rig markets, and the potential to resell assets is reduced.

Perhaps more complex is the challenge posed by the 44 foreign orders sitting idle at Chinese yards. Around 90% are essentially complete. In some cases, ownership is obscure, but in reality many are, or are likely to end up, owned by their builders as owners walk away from low deposits. This could potentially lead to a further rise in the Chinese owned fleet.

Transfer Window?

Despite now accounting for the ownership of a number of MODUs, yards are hardly equipped to become rig owners long-term, so what solutions can be found? There is little sign of interest from foreign owners to acquire rigs at prices required by yards, so more complex solutions have been mooted. These include direct acquisitions by NOCs, or by leasing companies, sometimes connected to yards, for charter out. One example is the first D90 semi-sub built by CIMC Raffles, which is now being operated by the offshore arm of CNPC following delivery to Chinese financial interests. Other rigs may end up in Chinese NOC operations, although there will be limits to this. Opportunities may also emerge for rig ownership to be transferred and chartered out elsewhere. For example, one jack-up has now begun operations off Iran.

So, Chinese rig ownership now has more players than the three NOCs. Often, the new players are the yards, who would not have intended when the rig building rush kicked off to now be on the pitch as owners. Finding transfer solutions for the rigs still on order, many of which were contracted by foreign owners, will take time. Who will make these signings is as yet very uncertain, but a further broadening of Chinese rig ownership may result.
Source: Clarkson Research Services Limited