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Ship Shortage Hampers Tapping Reserves

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The New York Times

Published: June 19, 2008

As President Bush calls for repealing a ban on drilling off most of the coast of the United States, a shortage of ships used for deep-water offshore drilling promises to impede any rapid turnaround in oil exploration and supply.

In recent years, this global shortage of drillships has created a critical bottleneck, frustrating energy company executives and constraining their ability to exploit known reserves or to find new ones.

Slow growth in oil supplies, at a time of soaring demand, has been a major factor in the spike of oil and gasoline prices.

But even as oil trades at more than $135 a barrel - up from $68 a year ago - the world's existing drillships are booked solid for the next five years. Some oil companies have been forced to postpone exploration while waiting for a drilling rig, executives and analysts said.

Demand is so high that shipbuilders, the biggest of whom are in Asia, have raised prices since last year by as much as $100 million a vessel to about half a billion dollars.

"The crunch on rigs is everywhere," said Alberto Guimaraes, a senior executive at Petrobras, the Brazilian oil company that has discovered some of the most promising offshore oil but has been unable to get at it.

"Almost 100 percent of the oil companies are constrained in their investment program because there is no rig available," Guimaraes said.

As a result, drilling costs for some of the newest deep-water rigs in the Gulf of Mexico - the nation's top source of domestic oil and natural gas supplies - have reached about $600,000 a day, compared with $150,000 a day in 2002.

These record prices have spurred a new wave of drillship construction. This could lead to renewed offshore oil exploration that would eventually bring more oil to the market and push down prices.

Already, 16 new drillships are scheduled to be delivered to oil companies this year. That is more than double the number delivered over the past six years combined. In fact, 75 ultra-deep-water rigs should be delivered from 2008 to 2011, according to ODS-Petrodata, a firm that tracks drilling rigs.

Shipyards from South Korea to Norway are working overtime to meet a huge influx of orders.

Robert L. Long, chief executive officer of Transocean, the world's largest drilling company, said he has under construction nine deep-water rigs, eight of which are under contract for four to seven years once they leave the shipyards. He expects to receive the ships between the beginning of 2009 and the end of 2010.

Transocean thinks the deep-water market will continue to be constrained until at least 2012.

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