Term contracts are making a comeback for drillers with high-spec rigs. Since the year started, the major drillers have seen operators increasingly use term contracts. As newbuilds roll off original contracts, the 3-year terms that undergirded their creation have been replaced with shorter-term contracts—from as little as 6 months up to 2 years. In an interesting twist, the industry continues to demand new equipment and is willing to support newbuilds with even longer—as much as 5-year—contracts.
Last fall drilling contractors reported that operators were buying out term contracts or delaying their drilling programs by idling newbuilds under tolling clauses. The added cash flow from early termination and tolling fees helped the contractors weather the lean times, and the tolling arrangements kept the rigs under the control of the operators who helped build the rigs.
There were concerns too many rigs would be pushed into the spot market and drive down day rates. But instead demand grew. Now major drillers see busy fleets, and some high-spec rig fleets are booked through the remainder of 2010.