COLD STACKED RIGS: What is the difference between warm stacked and cold stacked drilling rigs?

Cold Stacked Rigs

In general, to cold stack a rig is similar to "shuttering" an industrial plant; workers are let go, the hatches are battened down and the rig is completely shut down. Cold stacking a rig involves reducing the crew to either zero or just a few key individuals and "storing" the rig in a harbor, shipyard or designated area offshore. Although the duration of cold stacking can vary depending on many factors, rigs that are cold stacked are typically out of service for a significant period of time and are generally not considered to be part of marketable supply.

Typically, steps are taken to protect the cold stacked rig including the installation of monitoring systems that communicate rig status and critical systems information to locations onshore. Monitor Systems Engineering provides a comprehensive marking and monitoring system that includes GPS Position Monitoring, Intruder Monitoring, Fire and Bilge Alarm Monitoring, Anchor Winch Tension Monitoring, Solar Power Supply and an Automatic Identification System.

Cold Stacked: Also referred to as mothballing, cold stacking is a cost reduction step taken when a rig’s contracting prospects look bleak or available contract terms do not justify an adequate return on the investment needed to make the unit work ready (e.g., repairs or refurbishment). For example, a conventional GOM jackup might see its costs reduced from $30,000 per day when operational to as little as $2,000 per day when cold stacked. Cost savings primarily come from crew reductions to skeletal levels. Steps taken to protect the rig’s facilities include applying protective coatings, filling engines with protective fluids etc. With the costs of crewing up, inspection, deferred maintenance, and potentially refurbishment acting as deterrents to reactivation, cold-stacked rigs may be out of service for extended periods of time and may not be actively marketed. A return to service can be a costly proposition, often requiring tens of millions of dollars for refitting costs.

Warm Stacked Rigs

Warm stacked status means that a rig is idle but operational and is also referenced in the industry as warm stacked. A ready stacked rig typically retains most of its crew and can deploy quickly if an operator requires its services. In a ready stacked state, normal maintenance operations similar to those performed when the rig is active are continued by the crew so that the rig remains work ready.

Warm Stacked (also called Hot Stacked or Ready Stacked): a rig is deployable (warm) but idle (stacked). Warm stacked rigs are typically mostly crewed, actively marketed, and standing by ready for work if a contract can be obtained. Routine rig maintenance is continued, and daily costs may be modestly reduced but are typically similar to levels incurred in drilling mode. Therefore, rigs are generally held in a ready stacked state if a contract is expected to be obtained relatively quickly.

comments

1: "Keeping a rig cold-stacked can cost anywhere from $1-$5mm per year, and warming up a cold-stacked rig requires a $10-$50 million investment in surveys, upgrades, and refurbishment."

2: "Will any 1977-1985 built jackup put into cold stack ever return to active service?. Re-activation costs will be high and it normally requires a buoyant market with term contracts and good dayrates to justify the expense. Also this will be exacerbated by the number of new builds that are entering the market over the next two years. Cold stacking in today's market is essentially postponing the evil day when you have to scrap."

3: "Older rigs have been able to stay busy and earn good profits until now because there weren't enough newbuilds to fulfill operator demand. But as demand for offshore rigs declines, crude oil prices fall, and more new rigs deliver, the days are now numbered for many old rigs in the fleet."

4: "The number of drilling programs where old, low-specification rigs are optimal is declining and new rigs are increasingly competing for this work as the offshore market slows down. Older rigs are simply not competitive with new rigs when it comes to modern drilling programs. They have been serving as a buffer pending the deliveries of new rigs (old rigs have essentially been filling the gap between supply and demand while new rigs were built). The pace of attrition has been regulated by the pace of addition."

5: "Ultimately, this scrapping will be very healthy for the offshore drilling business as it will balance supply with demand and allow drilling contractors to begin raising dayrates again. It will also free up some staff to work on the new rigs, where hiring requirements number in the tens of thousands of staff over the next few years."