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Okay, so you want to buy an offshore oil rig. Sure, you have the money for it, but the process itself might seem complicated to you. Just like with your supercar collection, buying a drilling rig starts [music] with the price list.
Explore the economics of owning offshore oil rigs, including types, costs, buying options, and profitability strategies.
Key Takeaways
- Offshore rigs vary widely in cost and capability, from shallow water jackups to billion-dollar FPSOs.
- Buying new rigs involves long wait times and high costs; the secondary market and auctions offer cheaper alternatives but with risks.
- Operating costs are extremely high, even without drilling, making idle rigs costly liabilities.
- Oil companies lease rigs rather than owning them; rig owners profit by leasing rigs on day-rate contracts.
- A rig without a contract is not an asset but a financial burden due to ongoing expenses.
Summary
- There are five main types of offshore drilling rigs, differing in price and operational depth: jackup rigs, semi-submersibles, drillships, FPSOs, and fixed platforms.
- Jackup rigs are the cheapest, operating up to 120m depth, costing $180-$250 million, while FPSOs are the most expensive, costing $2-$3 billion and functioning as floating refineries.
- Rigs can be purchased new from major shipyards like Hyundai Heavy Industries, Samsung Heavy, and Keppel, with a 2-4 year wait and higher costs.
- The secondary market offers used rigs from major owners like Transocean and Valaris, often at lower prices but with risks such as idle time and depreciation.
- Post-bankruptcy auctions can provide rigs at 10-20% of original price, but high maintenance and idle costs can negate these savings.
- Daily ownership costs include crew salaries, helicopter transport, supply vessels, insurance (2-5% of rig value annually), and regulatory compliance, totaling $70-$180 million per year without drilling.
- Idle rigs quickly lose value due to ongoing costs, making contracts essential; a rig without a contract is a liability, not an asset.
- Oil majors like Shell do not own rigs but lease them from drilling contractors who build, maintain, and lease rigs.
- Profitability depends on securing day-rate contracts with oil companies, which pay a fixed daily fee for drilling services.
- The video emphasizes the complexity and high costs involved in owning and operating offshore rigs, highlighting the importance of contracts and market timing.
Full Transcript — Download SRT & Markdown
Speaker A
There are five main types of drilling rigs on the market, and the difference between them lies not only in price, but also in where exactly you plan to drill for oil.
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The cheapest option is a jackup rig. It's a three-legged rig that literally stands on the seabed. It operates at depths of up to 120 m.
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The price ranges from about $180 million to $250 million. It's cheap and reliable, but limited to shallow waters.
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But let's leave that for the budget-conscious, since we want to drill for oil at great depths. And for that, we'll need a semi-submersible.
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This is a floating platform on underwater pontoons, held in place by anchors. This rig can drill for oil at depths of up to 1 km and costs around 500 to 800 million. If you want to go even deeper
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and work at a depth of 3 km, then I recommend you look into a drillship.
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Essentially, it's a ship with a drilling rig in the middle. It operates at depths where the previous two types of rigs can't reach. One of these costs just under a billion. Well, if you're already a billionaire and the previous options
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are too simple for you, then here's the top segment for you: the FPSO. The acronym stands for floating production, storage, and offloading, but it's easier to say that it's a floating oil refinery. It not only pumps, but also stores and ships oil right out at
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sea. The price tag is roughly two to three billion dollars. There's also a separate category, but you probably won't be able to buy it, even if you had the money.
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These are fixed platforms, stationary giants. For example, the Norwegian Troll A, standing 472 m tall. One of the largest structures ever built by humans.
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Such platforms are usually built for a specific field and are not sold. Okay, I think you've already picked out a platform that fits your budget. So, now let's figure out where you can buy all this. Basically, you have three options.
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The first and simplest is to just buy a rig straight from the factory. The world's largest shipyards are Hyundai Heavy Industries in South Korea, Samsung Heavy, and Singapore's Keppel. You order from scratch, wait [music] two to four years, and get a brand new rig. The only
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downsides to this deal are the weight and the extra cost. But, you're an experienced businessman and don't want to wait for your new rig, let alone overpay for it.
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That's why you need to turn to the secondary market. And it works here just like it does with real estate or cars.
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The world's largest rig owners are Transocean, Valaris, and Noble Corporation. They regularly sell off older assets when upgrading their fleets.
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The most recent example took place in September 2025. [music] Transocean sold four of its drill ships, the Discoverer Clear Leader, Discoverer Americas, Deepwater Champion, and Discoverer India.
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All of them are ultra-deepwater rigs. Built between 2009 and 2011, relatively new rigs, you might say.
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But, because they had been idle for five to nine years, the company incurred a loss of $1.9 billion on the sale. The buyer was not officially disclosed, but the deal took place in Greece. So, yes, [music] this option can save you a
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significant amount of money, but there's another, even more economical and clever way. And that's post-bankruptcy auctions.
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Here, you can literally profit from others' misfortunes. After the 2014 to 2016 [music] oil crisis, dozens of rigs went under the hammer for 10 to 20% of their original price.
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Seadrill, one of the industry giants, went bankrupt twice in 4 years. Rigs that cost a billion were sold for 150 [music] million.
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Sounds like the deal of the century? Well, almost. But there's one catch that could make a 150 million-dollar rig end up costing more than a 1 billion-dollar rig.
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Okay, the deal is done. You've signed a check for 500 million, shaken hands with the seller, and taken a photo in front of your brand new rig. And now, the bill for the first day of ownership.
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$200,000. And that's even without any drilling, just to keep your rig standing in the sea and prevent it from falling apart.
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Where does this figure come from? Let's break it down point by point. [music] First and foremost is the crew. A large rig employs between 100 and 200 people at a time. Shifts last two to four weeks, then a rotation. Salaries for
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offshore workers start at $100,000 a year, and top engineers earn up to half a million.
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And you can understand them because few people would voluntarily agree to live for months in the middle of the ocean.
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Where, instead of a view out the window, [music] you have 360° of water and the occasional storm.
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But people have to be transported there somehow. The most popular option is helicopters. A single flight with companies like Bristow or CHC Helicopter will cost you between $15,000 and $30,000.
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And you have to fly constantly. Crew changes, inspectors, spare parts, as well as management who want to personally check once a month where the money is going.
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We also add supplies to this. Food, water, fuel, drilling equipment. Supply vessels that carry all this are rented for 30 to 50,000 dollars a day.
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Next comes the dreaded insurance. Typically, insurance for a deep water rig is estimated at 2 to 5% of its value per year. So, if your rig cost 800 million, you'll pay up to 40 million a year just for insurance. And that's if
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everything goes well. If there was a storm in your region or an accident happened to a neighbor in the oil business, insurance rates go up for everyone. And finally, regulators. A pile of certifications from DNV, ABS, Lloyd's Register, annual inspections,
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environmental audits, millions a year just for some incomprehensible paperwork. Put it all together and you get a large deep water rig burning through 70 to 180 million dollars a year just to exist. No drilling, no production, no profit whatsoever.
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Now, remember what I said about the 150 million dollar rig you successfully bought at auction after a bankruptcy and you think you saved money.
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But here's the problem. If that rig sits idle without a contract for even a single year, it eats up your entire discount. By the second year of downtime, you'll definitely be in the red compared to someone who bought a new
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one for a billion and immediately leased it out. That's why Transocean wrote off 1.9 billion on those four drill ships. It's not that they sold them poorly. It's that they kept them idle for years until the accumulated costs exceeded the
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residual value of the rigs and they waited for the moment when it was simply cheaper to give them up than to keep them any longer.
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That's why rule number one in this business is a rig without a contract is not an asset.
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It's Okay, so we've covered the costs. Now, let's take a look at how you can actually make money from all of this.
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It's important to know that Shell doesn't own the rigs it uses to drill for oil. Neither does Exxon Mobil, BP, Chevron, Petrobras, none of them own their own rigs.
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The world's largest oil companies simply lease them. There are two distinct sectors in this business. The first consists of those who own the rigs, they're called drilling contractors.
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Transocean, Valaris, and other companies we've already mentioned and you've probably forgotten. They build, buy, maintain, and lease them out. The second consists of oil majors such as Shell.
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They deal exclusively in oil. They don't need to shoulder $200 a year for every rig they use. They simply lease it for the duration of the project and pass all costs onto the owner. And this brings us to how you,
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dear new rig owner, will calculate your profit. Your rig starts making money the moment you sign a contract with a company like Shell.
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And not just any contract, but a day rate. You lease out the rig and the major pays you a fixed amount for every day it's drilling. How much is that?
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Right now.
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That means over the course of a 1-year contract, your rig [music] brings in about $160 to $180 million. Not bad, right? But here you need to know that this day rate is a sort of health indicator for the entire industry and it
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fluctuates like a cardiogram during a heart attack. In 2013, when things were more or less stable, rates reached $650,000 a day. In 2016, they dropped to $150,000.
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In 2020, due to COVID, they were even lower. Now, they're back up to $450,000 to $500,000.
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What does this mean for you? It means that a contract you signed in 2013 for 5 years could have earned you a billion.
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But that same contract signed just 6 months later could have bankrupted you. Meet John Fredriksen, a Norwegian, one of the richest people in shipping over the past 40 years.
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In the oil drilling industry, he built an empire called Seadrill. At its peak, the company was worth $20 and yet he managed to bankrupt this empire twice, in 2017 and 2021.
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But how does a man who understands this business better than anyone else on the planet bankrupt the same company twice in 4 years?
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Because in this business, you don't control anything that really matters. Oil prices are falling, the majors are tearing up contracts, COVID, all drilling projects are on hold, and when OPEC meets in Riyadh and decides to increase production, your day
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rates plummet. That's exactly what happened in November 2014. Oil prices fell from $110 per barrel to $30, and the industry's day rate dropped from $650,000 to $150,000.
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And if you're planning to buy a rig right now after watching this video, you should take a look at the geopolitical situation because Iran has now closed the Strait of Hormuz, the very same strait through which 25% of the world's
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seaborne oil passes. Brent jumped from $70 to $128 per barrel in just a couple of weeks.
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On April 13th, Trump announced a military blockade of Iranian ports, and now only a few tankers are passing through the Strait of Hormuz, and only from China, Russia, and India.
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For your rig, this means that if it's in the Persian Gulf, your contract with the major is on hold, war risk insurance has quadrupled [music] and supply vessels don't know how to reach you. If your rig is somewhere in
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another region, you might have won because oil prices are high and the majors are frantically looking for places to drill.
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Or you might have lost because as soon as the situation in the Strait of Hormuz calms down, [music] prices will drop and your contract will be renegotiated.
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[music] So yes, it looks like a complicated business, but let's imagine that you've been lucky with the contracts, the day rate is good, oil is expensive, Saudi Arabia is behaving decently, and the old men in the Oval Office have finally
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managed to reach an agreement. Can you picture it? Well, in reality, your problems won't end there because the rig could literally explode, like Piper Alpha in 1988, for example. It started with the most routine thing, scheduled maintenance of which there are thousands
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on rigs every year. Something wasn't shut off properly, gas leaked, a spark flew, and within a couple of hours the largest rig in the North Sea turned into a pile of molten iron at the bottom of the ocean.
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167 people died, and it was precisely after this that the entire global industry sat down and rewrote safety regulations from scratch.
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Everything that is standard today grew out of this tragedy. The second story is Deepwater Horizon in 2010. [music] They even made a movie about it.
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Another explosion and a half billion dollar platform lies at the bottom. When the investigations began, along with fines and lawsuits from fishermen and the state of Louisiana, the bill reached an incredible 65 billion dollars.
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Keep this in mind if you ever decide to lease out your rig. And one more story, the Alexander L.
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Kielland, as in Norwegian waters, 1980. No explosion or storm, nothing dramatic. The rig was simply standing there and operating, and then one of its legs suddenly snapped off, the platform capsized in 20 minutes, and 212 people fell into the icy waters of the North
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Sea. 123 of them did not survive, and the cause of all this was a tiny crack in a weld that engineers had left in during the design phase, and no one noticed it.
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For about 6 years, the platform operated normally with this defect, and on one ordinary work day, fate simply came to collect its [music] debt.
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Hey, I hope all these stories haven't put you off buying an oil rig. And now we can finally calculate how much you'll earn if you buy an oil rig right now for 500 million.
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Let's start with an optimistic scenario. You've signed a day rate contract for $450,000 a day. That's $165 million in gross revenue per year.
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Minus $100 million in operating expenses, minus another $15 million for insurance, that leaves $50 million in net profit.
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To recoup your $500 million investment, you'd need 10 consecutive years like that. And yes, that was still the optimistic scenario. This is a realistic scenario. Something like what we discussed above happens. War, a closed straight, OPEC changes the rules, a
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major breaks the contract, a storm destroys half the equipment, your day rate drops to $200,000.
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The rig sits idle for 4 months cold stacked, and insurance eats up another $20 million on top of that.
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Instead of a plus of 50 million, you end up with a minus of 40.
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The difference between a good year and a bad year is $90 million. But honestly, no one buys rigs as an individual. This is a game for governments, majors, and people like Frederiksen, who go bankrupt [music] every few years anyway.
Topics:offshore oil rigdrilling rig typesoil rig costsrig ownership economicsoil rig secondary marketoil rig auctionsdrilling contractorsFPSOjackup rigoil industry leasing
