Valuations in Buying or Selling Rigs
According to VesselsValue, valuations for some drilling contractor rig fleets have decreased by 40%. This is a likely higher for companies with older fleets. However, there are several opportunistic firms buying or selling rigs determined to use this down-market to buy rigs at severely discounted prices. In conversation with several clients, this has been compared to Baron Rothschild’s advice: “The time to buy is when there is blood in the streets”. Below are EnergyFundz’s™ observed trends in buying or selling rigs.
The most common inquiries from firms interested in buying or selling rigs are for jackups capable of drilling in 250 – 300 ft. Perhaps not surprising, given deepwater remains the space of the majors and well-capitalized E&Ps (if there is such a thing anymore).
New – Ready To Go To Work
Cash-rich firms buying or selling rigs have ceased on the opportunity to buy new-build and discounted jack-ups ready to commence work. A prime example is the recent Borr Drilling purchase of 15 Transocean jackups for $1.35 billion. Borr Drilling was able to acquire each rig for $90M as opposed to the true cost value of $200M. Private-equity clients have taken note and explicitly asked EnergyFundz™ to provide them with new-build and commissioned jackups. For these clients, there is little reason to undertake costly upgrades when new rigs are available at less than 50 cents on the dollar.
“The time to buy is when there is blood in the streets”.
– Baron Rothschild, following the Battle of Waterloo against Napoleon.
Old – Inefficiency is Rewarded
Several EnergyFundz™ clients buying or selling rigs have requested older assets, i.e. pre-2000 manufacture date. This is because some countries such as Indonesia, Oman or Mexico, inadvertently rewarded drilling efficiency. The motivation is to create jobs which last longer and thereby receive subsidies or tax incentives. These clients typically tend to be small international E&Ps. We have noticed used jack-ups priced between $11M – $27M or bare-boat leases of $28,500 – $43,000 per day.
2,000HP rigs have been most popular with EnergyFundz’s™ onshore clients buying or selling rigs. These buyers hail from South America, Eastern Europe and the Middle East.
New – Non-Existent
It is telling we rarely receive requests for buying or selling new onshore rigs. A 2013 high-specification 2,000HP re-certified rig was the closest to new in our portfolio. It is a sign of the times when this rig was listed for sale at almost half the original value of $40M. Through negotiation, we worked with the seller to come down to $18M, $15M, $13M and finally settling at just over $11M.
Used – Recertified Packages
Approximately a third of EnergyFundz clients buying or selling rigs fall into this category – used onshore. In this instance, the US acts as the primary exporter. Prices here range between $4M – $9M for rigs built in the early 2000s with fully re-certified drilling packages. Older rigs are popular for the same reasons as the offshore industry – to keep rig crews busy and employed.
Paralysis by Analysis
Too much choice can be a bad thing. Private equity clients, in particular, are overwhelmed by availability when buying or selling rigs and has resulted in missed opportunities. Similar to a real-estate buyer’s market, rig buyers prefer to wait for better rigs for less money. This is possible, but as with most things – it shall pass. The market will even out and firms buying or selling rigs will regret not acting soon enough. In fact, some analyses have claimed the rig market recovery is already underway. Hence, firms involved in buying or selling of rigs should not delay and miss their moment. Rothschild, for one, did not make his fortune by acting during a recovery.
EnergyFundz™ mission is to find unique and lucrative deals in a challenging oil & gas market. We have an active buyer network interested in connecting with sellers of new or used rigs and oilfield equipment. EnergyFundz™ buyers have been vetted and have strong reputations in their regional markets. Our services also include commercial, planning and logistics management for offshore and onshore assets. EnergyFundz™ is committed to secure transactions via clear titles and funds transfer practices based on US law.
About Raya Guruswamy
Raya Guruswamy is EnergyFundz™ Founder and CEO. He has over 10 years of experience in the oil & gas industry in major construction projects and upstream exploration. Prior to EnergyFundz™, Raya worked in BP’s Rig Startup and Acquisition team and held roles in rig vetting, audit management, planning and commercial analysis. He holds a BS in Energy-Finance, MS in Systems Engineering and MBA.