Waiting game: Only 50% of rigs could be delivered as scheduled in 14-15

150-200 days of delay on average since 1Q13.

Rampant delays at yards of China-made rigs have slowed down the influx of newbuild rigs as drillers focus on filling their new rigs with charters and opportunities for distressed asset sales.

According to a report by CIMB, even an established yard like Dalian shipyard is experiencing delays of an average 224 days.

CIMB estimates that only 25 out of the 50 units of Chinese-built rigs scheduled for delivery in 2014-2015 could make it to the market as scheduled. The rest could be pushed back till 2016-2017, or abandoned.

CIMB adds that with a more realistic influx of new rigs, demand/supply pressure is expected to be balanced, keeping jack-up rates firm (unlike those for the mid-water floaters).

Here’s more from CIMB:

Rig operators’ current strategy is to get their rigs on charter, while looking for bargain units built for speculation. There is an increased sense of urgency among some of the speculators to flip the assets that are due for delivery in 2015 as back-end bullet payments are due. This could put some downward pressure on jack-up rig prices. With that, conventional drillers will be spoilt for choice with new/cheaper rigs. We expect the newbuild programme for jack-up rigs to be pushed back by 12-18 months.

As we wait for the next jack-up rig cycle to return, we place our bets on service rigs charterers, namely Swissco and Ezion, as the demand for second-hand assets is still resilient in the Gulf of Mexico and the Middle East. We also like Mermaid Maritime for its strong 2H14 recovery story and because it is the cheapest among peers at 5x EV/EBITDA.

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