Shelf drilling

COMPANY PROFILE

2014

Shelf Drilling

+971 4 567 3400 | www.shelfdrilling.com

Thai drilling for Shelf Editorial: Christian Jordan

Shelf Drilling is currently constructing two new jack-up rigs which will be used for projects in the Gulf of Thailand by Chevron Thailand, a subsidiary of Chevron Corporation.

Shelf Drilling CEO, David Mullen tells Total World Energy more about these new rigs and the fantastic development of this unique business since its formation in 2012.

Earlier this year, in May, international jack-up rig contractor, Shelf Drilling, announced that it had been awarded contracts for two newbuild jack-up rigs by Chevron Thailand, continuing the company’s focus on Asia and Southeast Asia.

Both of the contracts are for a five year term and the rigs are set to begin operations off Thailand in early-mid 2017. Reports suggest that revenues generated for each PAGE 2

contract could be around $281 million (excluding revenues for mobilisation, demobilisation and miscellaneous adjustments).

Total World Energy asks Shelf Drilling CEO, David Mullen about the newbuild rigs being developed for these contracts and why the company was selected by Chevron Thailand.

“Chevron Thailand see that as a focussed company, we can be a

lot more flexible in our operation and drive performance. They saw a company looking at only jackups, with a lot of experience at the management, shore base and rig crew levels, and they didn’t see us as a new company. We have rig crews that have been around for years. I can’t tell you exactly why they selected us but it wasn’t on price; it was more on our ability to execute,” he says.

Shelf Drilling “We are not that new in the industry, what we are is a company with decades of operating experience albeit through our legacy companies so when we acquired the fleet of assets from Transocean we also brought on board all the people that were working on the rigs. We carried forward the history that we had with the legacy companies and so through those legacy companies, we have actually been operating in the Gulf of Thailand for decades.”

Shelf Drilling has contracted Lamprell (featured in Total World Energy, July 2014) to build the two new rigs and they will be of the popular MLT Super 116 E design.

Conveniently, Lamprell’s Hamriyah shipyard in Sharjah, Dubai is just 50km from the Shelf Drilling headquarters in Jumeirah Lakes Towers.

“We were awarded the contract five months ago” Mullen says, “and we’ve continued to do a lot of engineering work; these rigs are a

strong collaboration effort between ourselves, Chevron and Lamprell and we believe that these rigs will be quite unique. They are going to be kitted out with a lot of offline capability which will allow them to drill wells in a very short period of time. In Thailand today, we are able to drill complete wells in around six days with Chevron and we believe our new rigs will save approximately 20% of that time.

“The important thing is that they are really fit for purpose for that operating environment and they are fit for purpose for the Chevron well profile. They’ve been designed with a lot of input from our engineers, Chevron engineers, and of course Lamprell. We cut steel on the first rig this month and we will cut steel on the second rig six months from now. All the detailed engineering has been completed, all the design criteria is complete and now all that remains is for us to construct the rigs.”

With one of the strongest fleets

in the industry, Shelf Drilling’s group of assets is big. Currently consisting of 37 jack-up rigs, one swamp barge and the two newbuild jack-ups currently under construction, Mullen says that each asset has its own strength and is well suited to a certain type of operating environment.

“We see all of our rigs as our flagship. We have a diverse fleet; we have rigs that are fairly low specification but are ideally suited for what they do, like the rigs in the Gulf of Suez on EGPC joint ventures. We have rigs in the Gulf of Thailand which are highly specified to be able to undertake work in a very efficient manner.

The Gulf of Thailand is by far and away the most efficient drilling environment in the world and it’s been pioneered by Unocal and now Chevron. We have rigs that fit all the different categories. What we like about our fleet is that most of it is an MLT 116C design which we recognise as the most versatile rig

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ever built. I wouldn’t characterise any rig as a flagship. They are all fit for purpose with what they do and that’s exactly how we want to manage our business,” he says.

There are a few fundamental rig designs to which most of the prominent shipyards stick to; the F&G MOD-VB, the Semcor design from Baker Marine, the LeTourneau design; but Mullen and Shelf Drilling are fans of the MLT 116C design. In Thailand, and around the world, this design has seen much success and the company is particularly fond of the strength of the legs on a MLT 116C designed rig.

“The MLT 116C has always had very strong legs and they are ideally suited for adverse metocean data. Over the years it’s been very versatile, operators prefer it and when you look around the world you’ll see the legacy of the MLT 116C’s footprint and if

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you’re going into a mature area of operation, you’d rather go in with a rig that has the same design as before because you have less risk of punch through, or rapid leg penetration. That’s why the design is favourable to us and a lot of others,” explains Mullen.

SHALLOW WATER Shelf Drilling’s sole focus is shallow water. This is where the company has a vast amount of experience and also the aforementioned perfectly suited fleet. When asked why shallow water receives an emphasis from his company, Mullen says it’s simply because that is where most of the offshore recoverable oil is located.

“To me it’s very obvious;” he says “shallow water is the home of the vast majority of the offshore reserves. So today, 80% of total offshore reserves reside in shallow water and actually not far from here

– the Arabian Gulf is home to a vast quantity of oil reserves. The other thing that’s pretty compelling is that typically the customer break even costs are very low unlike deepwater where the customer break even costs are very high or the US lower 48 where the conventional breakeven costs are very high.

“It’s a core element of our strategy. I called the company Shelf Drilling because I have drawn a line in the sand; we don’t have any intent to go into deepwater or harsh environments. We’re very happy to stay focussed on shallow water, we believe there is a lot of differentiation in how we operate and how we interface with our customers by being focussed.”

Shallow water operations also provide much better cost figures and less risk exposure than deepwater and with the three largest oil fields in the world situated very close to the Shelf

Tenglee Marine & Engineering Pte Ltd (TL) was established in 1993; together with Yong Cheong Marine & Engineering Pte Ltd, Yong Ming Marine & Engineering Pte Ltd and Hong Yat Steelwork & Engineering Pte Ltd, it combines its resources to cater for shipbuilding, marine repairs and specialised engineering works for the marine & offshore industry in Singapore. TL is recognised as one of the most reliable and competent steel hull fabricators in Singapore and has been granted resident contractor status by the Keppel Group of Shipyards (Keppel Singmarine, Keppel O &M and Keppel FELS) and PRM Offshore Heavy Industries.

List of Clients • • • • •

Dry Dock

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Shelf Drilling Essaer Indian Cost Guard ONGC Jindal

Infrastructure 2 Goliath Cranes at the dock with a combined lifting capacity of 1200 T at the dry dock 2 ELL cranes at the Dock Site with individual lifting capacity of 40 T Workshop facility available with all facilities to taken on all refite jobs.

Dry Dock Underconstruction

728m X 105m

Contact Person

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Drilling headquarters, the company is perfectly situated to take advantage of the production work that must go ahead for these fields to reach their full potential.

“The top three largest offshore fields are all in the Arabian Gulf.

Safaniya is the largest with 36 billion barrels of recoverable reserves. Manifa just started in 2013 and has 13 billion barrels of oil reserves and Upper Zakum in Abu Dhabi has 21 billion barrels of oil reserves.

“When you talk about deepwater, people get excited about a billion barrel discovery and that puts it in context. If you look at everything in Brazil, it’s a lot of barrels yes; it’s probably 18-20 billion barrels but the cost of that barrel is about $5070 a barrel. The cost of a barrel in the Arabian Gulf is around $15-18 a barrel.

“We have very little risk to our operations, everything we do is above the water line; whereas if you’re in 10,000ft of water, most of what you do is hidden below the water line so we don’t have © Shell PAGE 6

exposure to a Macondo-like incident whereas in deepwater you do. I’m happy that everyone else in the industry is focussing their efforts on deepwater because it creates a lot of opportunities for us to consider,” explains Mullen.

GROWTH AND EXPANSION Like any company, expansion is one of the golden targets for Shelf Drilling. A business strategy has been formulated and by sticking closely to that strategy the company has seen significant success. You’ll find Shelf Drilling rigs worldwide in areas including Southeast Asia, India, West Africa and the Middle East, North Africa and Mediterranean.

And as for the future, the focus will obviously remain on shallow water and Mullen says that it is likely that more rigs will be ordered but, importantly, the company will not order rigs purely on speculation.

“We are in discussions with a number of oil companies and I would say it’s more likely than not.

We will not order on speculation, we like the model that we have with Chevron in Thailand, we see that as a much better model than ordering a rig on spec – we order a rig that’s ideally suited for what the operator wants – this is the way forward with newbuilds, not to just go out and order something that the yard builds.”

And because of the strong relationship the company has built up over the years with Lamprell, a relationship that has been enhanced recently during detailing of the new rigs for Chevron Thailand, Mullen says that the partnership could flourish further thanks to Lamprell’s consistency when it comes to satisfying Shelf Drilling’s strict quality, safety and efficiency criteria.

“The selection of Lamprell was based on a number of criteria; quality, flexibility, conforming to design criteria, cost, ability to deliver on time and on budget and the financing that goes with everything – those were the real pillars that we had to stick to.

Shelf Drilling Lamprell came out on top, on aggregate, in all areas. They certainly impressed us with the quality, they certainly impressed us with their track record of delivering on time and on budget, but we will continue to keep relationships with other yards. I don’t think we would necessarily go with one yard all the time; as long as they continue to deliver and compete, they’ll have an advantage because being proximal to where we are is an advantage.”

DECADES OF EXPERIENCE Mullen himself is a veteran of the offshore oil and gas industry and during the formation of Shelf Drilling in November 2012, he used all his experience to make the transition of assets from Transocean, and all the finance

arrangements that went with that deal, as smooth as possible.

“I started Shelf Drilling, it was my idea. The whole genesis of what Shelf Drilling is, is something I started. I reached out to private equity investors; one in particular, Lime Rock Partners; and asked them if they would be interested in co-investing in a rig transaction and they were very interested.

“We bought two other private equity investors in and that’s how the company started up.

We bought the fleet of assets, the people, the contracts and a transitional agreement all from Transocean and we worked through that. We’ve only been in business for two years as a standalone entity but what we really have been doing is operating these rigs for a long time in terms of day-to-day

operations,” he says.

“My own background; I spent 25 years with Schlumberger. I was the President of the oil field services division in the Western Hemisphere – North and South America. I then spent a short amount of time with Transocean, after that I went to Norway and ran a Norwegian Drilling company, Ocean Rig ASA which was bought out by Dry Ships Inc. I then went to the UK and headed up a company called Wellstream Holdings, a subsea company, principally involved in manufacturing flexible products for ultra-deepwater and deepwater applications and I ended up selling that to General Electric in 2011.

Since then I’ve been engaged in acquiring this fleet of assets and setting up the company,” explains Mullen who away from his business

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successes, also holds a B.A. in Geology and Physics from Trinity College Dublin and an M.S. degree in Geophysics from University College Galway, Ireland.

Since the establishment of Shelf Drilling, the business has shown huge positivity and Mullen outlines this with details of the backlog. “The numbers speak for themselves. We started off at inception with a backlog of $1.4 billion and today we have a backlog of $3.3 billion. Our customers would not have given us all of these © Shell PAGE 8

contracts with these long backlogs if they didn’t believe in what we’re doing. We have a backlog larger, per rig, than any other drilling contractor in the jack-up space.”

And speaking about the future of the business, the CEO says that continual improvement is a target. “We can always improve and we will always strive for continuous improvement but I think our business model - having a sole focus, being fit for purpose; focussing on national content and having an organisation that is

optimised for what we’re doing - is creating a big advantage for us.”

And as we move into times that will undoubtedly throw up many challenges for all rig contractors, Mullen is still excited and enjoying his position and that of his company.

“There’s always something to surprise you. This is by far and away the most interesting thing I’ve done. Setting up something that did not exist before is not something you often get the chance to do,” he concludes

Competitive Solutions for Complex Projects

Shelf Drilling

Lamprell has played a prominent role in the development of the energy industry in the Middle East for over 35 years and is the regional market leader in the rig construction and refurbishment business. We are the leading non-Asian yard for new build sub-350 feet class rigs with larger rigs well within our core capabilities and we have extensive full refurbishment, upgrade and conversion experience.

Lamprell Delivers First Class Safety Highly Skilled Workforce Client Satisfaction World Class Quality Schedule Certainty New build jack up rig during jacking trials

Lamprell’s largest rig conversion and refurbishment project

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