AIDA rig financing – more room to do upgrades properly

The need for an upgrade is clear. The equipment demands more and more maintenance, energy consumption could be reduced, and new solutions could improve both operations and the working environment.

Yet the project is postponed. For many rig owners, several upgrades compete for the same investment budget. One project ties up capital while the next has to wait. The result can be improvements carried out piecemeal, or a scope trimmed down to fit this year's budget.

AIDA is now working on a financing model that will give rig owners a greater ability to carry out upgrades and spread the payments over time. The aim is that one project should not necessarily have to be fully paid off before the next can go ahead.

When the immediate investment cost becomes the deciding factor, important features get dropped. That might be control options, instrumentation, maintenance access or the flexibility to make changes later. A simpler solution may be cheaper to buy, but bring higher operating costs and a fresh need for upgrading further down the line.

AIDA wants to create more financial room to choose a solution based on the facility's actual needs and expected lifetime. That means technical quality, execution and financing have to be assessed together. First we need to understand what the upgrade is meant to achieve. Then we need to examine how the project can be financed and carried out on sound terms.

A rig may need improvements in ventilation, pumps, motors, control and monitoring all at the same time. Several of these measures also affect one another. If the projects have to be carried out at long intervals, it becomes harder to get the full effect of the upgrade. It can also mean repeated engineering, mobilisation and adaptation.

The model AIDA is developing will examine the possibility of gathering the relevant measures into one execution and financing plan. Payment obligations should be spread over an agreed period, giving the rig owner more flexibility in planning. Scope, ownership, payment schedule and division of responsibility must be tailored to each project. The model is under development, and the specific terms will depend on the project assessment and the financing partners.

The financing must support an investment that makes sense for the rig. AIDA will therefore place weight on mapping the current condition, defining the required function and assessing the relevant measures before the project is put together. For some upgrades the gain will be lower energy use. For others it will lie in simpler maintenance, better control, higher availability or a better working environment.

Expected gains have to be weighed against installation costs, financing costs, maintenance needs and any downtime. Calculated savings must rest on clear assumptions and be followed up with measurements where relevant. The goal is greater ability to execute, and better technical decisions.

Tax and public support schemes can affect the overall economics of a project and should be considered early. Investment in operating assets may qualify for tax deductions, often spread over time through depreciation. Who holds the right to deduct, and when the deductions take effect, depends among other things on ownership, contract structure and the tax rules that apply to the business. The financing model does not therefore automatically bring additional tax deductions. (Source: the Norwegian Tax Administration.)

For projects with relevant energy and climate gains, AIDA also wants to explore public support, for example through Enova or other applicable schemes. Enova runs a range of support programmes, each with its own requirements for the applicant, the technology and the project. Whether a specific rig upgrade qualifies has to be clarified case by case. (Source: Enova – support for businesses.)

The scope for combining financing, tax deductions and support must be assessed within the applicable rules. Timing of applications, support conditions and any restrictions on combining schemes must form part of the project planning.

AIDA wants to talk to investors and financing partners who would like to explore a model tied to specific upgrade projects in the rig market. The ambition is to connect capital with technical understanding: identify the need, assess the solution and establish a project that can be delivered. For each project, the investment case must describe costs, payment obligations, responsibilities, risk and expected gains. Returns and other terms are to be agreed on the basis of the specific structure. We are looking for partners who want to help develop this with us.

AIDA would also like to hear from rig owners and operating organisations that have identified upgrade needs but limited room to act within today's investment budgets. The starting point can be a single project or a larger upgrade plan. Together we can examine the need, prioritise the measures and assess whether the model we are developing is relevant.

Are you an investor who would like to explore the model? Or do you represent a rig owner who wants to hear more about financing upgrades? Get in touch with AIDA.