Offshore Drilling's Business Language
You no doubt have heard some common words bandied around in the offshore drilling industry. Some of the terms change, some are different from region to region. But as long as the company men have something to say and you don’t want to be out of the loop, you’ll want to add these five new buzzwords to your vocabulary.
Cost Management Initiatives
Contractors need to save money at the rig and in the home office. Since they can’t control falling day rates and utilization, they instead focus on "cost management initiates,” otherwise known as "cost control focus” or "optimization of overhead and maintenance expenses.” Some of the cost management initiatives we see in the field include:
- Lowering costs on idle rigs
- Lowering newbuilds’ operational costs
- Cutting repair and maintenance costs
- Getting rid of employee retention programs
- Decreasing shore-based support spend
Termination for Convenience
This term refers to early termination of contracts for non-operational reasons. Under this contract clause, rig owners are protected if the operator decides to give the contracted rig back early. Owners still earn most of the dayrate backlog still left on the contract, even if the contractor doesn’t finish out the term.
For example, ConocoPhillips recently returned a new drillship that hadn’t even begun work yet to the offshore driller ENSCO. Under a termination for convenience clause, ConocoPhillips still has to pay the contractor two years plus fees of the original three-year contract.
Blend and Extend
Blend and extend deals are agreements made between contractors and operators who extend rigs’ payroll for lower prices over the whole of the term. Another term that means the same thing is "rate-for-term trades” or "give and take” agreements. This kind of arrangement is good for contractors who want to make sure their rigs are being used and for operators who need cost relief.
Generally, attrition means the gradual reduction of something through continued attack. In the offshore market, this term is being applied to semis and drillships that have been scrapped or will need to be cold stacked or scrapped within the next few years. With so many floaters sitting idle that are over 30 years old, there likely will be a nearly 40% supply reduction in the floater market – a percentage that we’ve never seen the likes of before.
Dockside HoldingThis term refers to rig contractors who have delayed new rigs coming in from the shipyards. Because of limited tendering from operators, rig contracts have been renegotiating later delivery of drilling rigs and drillships. To make this a good deal for shipyards, contractors offer shipyards accelerated milestone payments to keep the rig supply in the yards for longer. Some contractors aim to have the construction schedule shifted at the shipyard, while others arrange for "dockside holding,” a process where the finished rig is held in its slot at the shipyard even after completion.