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New York-listed offshore driller Valaris is getting ready to add two newbuild drillships from a South Korean shipyard at a considerable discount compared to current market prices, Anton Dibowitz, president and chief executive officer, confirmed during the company’s second-quarter earnings call.
Based on the company’s contracting progress and the current pool of available rigs shrinking, Valaris intends to exercise a purchase option at Daewoo Shipbuilding and Marine Engineering (DSME), now Hanwha Ocean, on ultra-deepwater floaters Valaris DS-13 for a price of around $119m and Valaris DS-14 for $218m.
The company recently sealed a new long-term contract for the Valaris DS-7 offshore West Africa, representing the seventh contract secured by one of Valaris’ stacked floaters since mid-2021, leaving only one uncontracted drillship, the DS-11.
Dibowitz estimated no more than 10 competitor rigs remaining amongst the stacked drillship fleet, with a further eight newbuild units remaining at South Korean yards, including Valaris’ duo.
He noted, however, that three of these eight rigs are either contracted or have been selected for future work and are expected to be contracted soon and that it is also highly unlikely that the sector will see another flow to the newbuild cycle given high build costs, long lead times and limited shipyard availability.
“We see strong customer interest in these rigs. And based on our current market outlook, we believe that most, if not all, of the supply of stacked and newbuild drillships in the global fleet will be needed to meet growing future demand,” said Dibowitz.
The DS-13 and DS-14 are said to be the only remaining drillships available at the South Korean shipyards with two blowout preventers (BOPs), and Valaris estimated that it would cost around $50m to add a second BOP to a ship that is only equipped with one.
According to rig brokers, shipyard clearing prices for the remaining drillships are likely to be $300m or higher when including the cost of a second BOP.
“Shipyard prices of $119m for the DS-13 and $218m for the DS-14 are very attractive, representing a discount of 60% and 30%, respectively, to the current market rate for a comparable asset. As a result, we believe the purchase options for both DS-13 and DS-14 represent compelling investment opportunities that will generate attractive returns over their lives,” Dibowitz told investors.
He noted that Valaris will only reactivate the duo for contracts that are expected to generate a “meaningful return on reactivation costs over the initial firm term”. |
