I honestly think it wouldn't be a bad move. Like you said it removes some long-term upside if demand strongly increases but the near-term cost benefits and constraining of supply is probably better. If dayrates continue to climb there will be plenty of shareholder returns anyways.
There’s no rush to do anything with them but if they were to cannibalize 1 to 3 of them, they’d have to receive some sort of benefit (ie better terms on an acquisition). For now they are option value with low carrying costs.
Does it make any sense to convert drillships into something else after cannibalization in order to avoid scraping? Or their hulls and superstructures are too specific for such conversion?
Thanks, Roman. I believe there has been a rumor that one of them may be converted into a wind farm crane installer but momentum on that has faded. Deep sea mining conversion on Olympia has been quiet. Could use hull for FPSO conversion. I'm sure there's other potential outlets but I think cannibalizing for parts has value for a warm fleet of similar design ships
Yes, a combined company is definitely more efficient and valuable. There's $75-$100mm of synergies for starters. Seadrill has more to gain via a more diversified (and better) fleet but scale and diversification reduces lumpiness of cash flows and ultimately leads to a lower cost of capital long-term which is good for shareholders.
I prefer "US GoM" b/c its concise (fewer characters for Twitter) and recognized across the world. I'm open to Gulf of America but if I wrote "GoA" I don't think anyone would know what it meant. We'll see what the American drillers call it next week!
None of this is positive for the idea that deep-sea drilling is ready for some sort of renaissance. In fact, it feels exactly like the industry is continuing to beat an orderly retreat. It's a shame, because the positive scenarios, here and elsewhere, appear to have a good deal of merit, but obviously something is being missed
Thanks, Gordon. I think a challenge today for drillships is they need multiyear development drilling programs to commence. Unlike shale, this takes years. FPSO's are critical infrastructure for production. They are multi-billion dollar projects and take years to be delivered. Drillships have already been built and are ready to but as they await long-lead time FPSO's and equipment, they face idle risk. I believe this is part of the problem drillships face in 2025 but I do see a gradual growth in demand as projects commence. Deepwater is long-cycle investment.
I honestly think it wouldn't be a bad move. Like you said it removes some long-term upside if demand strongly increases but the near-term cost benefits and constraining of supply is probably better. If dayrates continue to climb there will be plenty of shareholder returns anyways.
There’s no rush to do anything with them but if they were to cannibalize 1 to 3 of them, they’d have to receive some sort of benefit (ie better terms on an acquisition). For now they are option value with low carrying costs.
Does it make any sense to convert drillships into something else after cannibalization in order to avoid scraping? Or their hulls and superstructures are too specific for such conversion?
Thanks, Roman. I believe there has been a rumor that one of them may be converted into a wind farm crane installer but momentum on that has faded. Deep sea mining conversion on Olympia has been quiet. Could use hull for FPSO conversion. I'm sure there's other potential outlets but I think cannibalizing for parts has value for a warm fleet of similar design ships
The value of ship’s hull is marginal comparing to the value of properly cannibalized/stored/used drilling equipment indeed.
Thanks Tommy. I appreciate your writing. Cheers John.
Thanks for continuing to read, John! I have no shortage of topics for this industry
Hypothetical merger between transocean and sea drill = the current valuation of each would be better investment?
Also, do you ever think you’ll ever start calling it Gulf of America? 😃
Yes, a combined company is definitely more efficient and valuable. There's $75-$100mm of synergies for starters. Seadrill has more to gain via a more diversified (and better) fleet but scale and diversification reduces lumpiness of cash flows and ultimately leads to a lower cost of capital long-term which is good for shareholders.
I prefer "US GoM" b/c its concise (fewer characters for Twitter) and recognized across the world. I'm open to Gulf of America but if I wrote "GoA" I don't think anyone would know what it meant. We'll see what the American drillers call it next week!
None of this is positive for the idea that deep-sea drilling is ready for some sort of renaissance. In fact, it feels exactly like the industry is continuing to beat an orderly retreat. It's a shame, because the positive scenarios, here and elsewhere, appear to have a good deal of merit, but obviously something is being missed
Thanks, Gordon. I think a challenge today for drillships is they need multiyear development drilling programs to commence. Unlike shale, this takes years. FPSO's are critical infrastructure for production. They are multi-billion dollar projects and take years to be delivered. Drillships have already been built and are ready to but as they await long-lead time FPSO's and equipment, they face idle risk. I believe this is part of the problem drillships face in 2025 but I do see a gradual growth in demand as projects commence. Deepwater is long-cycle investment.
I like your Les Paul avatar btw