Demand for high specification jack-ups continued to remain strong in international markets such as Middle East, North Sea and West Africa and will continue to be a primary market driver for the future growth of the drilling division.
- The company generated over 50% of its drilling revenue from foreign operations, which included doubling the Middle East operation from four to eight rigs during the year. - In 2007, the LTI generated $712 million in external revenue, a 61% increase over 2006.
- Demand for worldwide jack-up was reported to be 378 rigs with utilization at 90%, and the firm believes that the forecasted supply deficit of 44 to 58 jack-ups exist worldwide for projects in 2008 and 2009, and deficits continue to be a major factor in almost every operating region except the US Gulf of Mexico and Southeast Asia.
- Areas like Saudi Arabia, Kuwait, Qatar, Bahrain, UAE, and Iran continued to drive international jack-up demand with increased dominance by the national oil companies.
The firm’s 29 deep well land rigs were 95% utilized in Texas, Louisiana, Oklahoma and Alaska during 2007, down slightly from 97% in 2006.
- New rigs enabled the land rig operating days to increase about 36% between periods, and the company''s average land rig rate improved to 22,800 during 2007 up slightly from 22,500 in 2006. - Two additional rigs were reported to be under construction for delivery during the first half of 2008, and the land rig fleet is contracted at 93% with an average day rate of 22,500 per day. - During the year, the company’s feet of 21 offshore jack-up rigs were 94% utilized, up from 86% in 2006, and the average offshore day rate improved 11% between years to 156,200 for 2007 from 141,300 in 2006.
Regional Highlights:
The Middle East:
- The Middle East continued to set the pace for global jack-up demand as the supply in the region was 97 jack-ups, while demand was at 91 and contract utilizations was 94%. - Day rates ranged from 35,000 per day to 190,000 per day, and tenders are projected from Saudi Aramco, QP, Mars, RasGas, Oxy, KJO, Qatar Gas, Dolphin, KLC and Bapco, Iran and Oman. - Saudi Aramco forecast an increase in their offshore fleet from 24 jackups to approximately 40 jack-ups over the next few years, and in other areas like Qatar, strong LNG demand will continue to track high-spec jack-ups into the region and in Bahrain and the UAE.
The North Sea:
- More opportunities for Rowan high-spec premium jack-up rigs in the North Sea are expected, and recent tax incentives for the Norwegian government are benefiting operators and contractors are measuring in years rather than months. - The supply and demand was 35 jack-ups and is contracted at 100% and day rates in the region range from 61,300 to 70,000 per day. - The North Sea jack-up market is exhibiting some tightness with a two or three-rig full cash for 2008.
- Day-rates in the North Sea are forecasted to remain strong in 2008 due to departure of several rigs.
The firm currenty has two jack-ups operating in the region.
Trinidad:
- The supply and demand was five jack-ups with contract utilization of 100%, and day rates in the region ranged from 52,000 to 251,000. - The only rig in Trinidad, the Rowan Gorilla III, operated for PetroCanada at a day rate of $251,000. - The firm is in discussion with other operators regarding additional projects in Trinidad and has a right to substitute the Gorilla II for the Eastern Canada work.
The Gulf of Mexico:
- This jack-up market remained predominantly a well-to-well environment compared to the long-term contracts available internationally, and this trend is forecasted to continue throughout 2008. - The region has 79 jack-ups while the demand is 52 rigs with a contract utilization of 66%, and the five independent leg cantilever jack-ups in the Gulf of Mexico dropped from 79 rigs in 2001 to 32 rigs in 2007. - It expects deep drilling to continue in US Gulf of Mexico led by BP, Plains, Devon, McMoRan, and is hopeful that the deep gas play can help to revitalize the region.
- The jack-ups in the Gulf of Mexico were contracted and their average day rate in the region were 123,000 per day, and the three offshore deep gas rigs were working at day rates that range from 175 to 220.
West Africa:
- The Gorilla VII will mobilize the West Africa market at the end of March and the rig is expected to commence operations in Angola for Cabinda Gulf in April at a day rate of 330,000 per day for approximately two years plus one-year option. - The rig will earn approximately $235,000 per day during its modification and mobilization period that began in January, and the supply in the region was 26 jack-ups while the demand was 25 rigs and contract utilization was at 96%. - Day rates ranged from 66,000 per day to 300,000 per day and the region is forecasted to see a four to seven-rig deficit over 2008 and 2009 due to the expected tender from Cabinda Gulf for additional high-spec jack-ups and an increase in demand in Nigeria.
Fiscal 2008 Outlook
- The firm plans to invest a total of approximately $1.7 billion for the 9 rigs and expects to own a fleet of 30 jack-up rigs by the end of 2011. - The third Tarzan Class jack-up, the Bob Keller is expected to generate approximately $201 million in drilling revenue or more than $183,000 per day. - The company estimates that its 2008 CapEX including progress on two additional 240Cs to be built at Vicksburg and the four Super 116E rigs being built by AmFELS, would be in the range of $525 million to $550 million and will continue to be financed through operating cash flows.
Key questions and answers from the fourth quarter earnings call conducted by Rowan Companies, Inc. on February 28, 2008.
Arun Jayaram (Credit Suisse): You mentioned that beginning in 2008 that most transactions would be at arms length. How does that impact the revenue recognition going forward?
William H. Wells: It does not effect the consolidated numbers, but on a standalone basis there is about a 15% to 20% markup that LTI will now get on Rowan products that we will attempt to share what that number is.
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