What are drilling rigs worth these days?

Here we are in the middle of the worst oil and gas downturn of a generation.

Enter Groundforce Geodrilling Solutions, which was placed into receivership in November 2015. The Company was founded in 2010, and at the time of the receivership had 12 rigs and a net book value of PP&E of $41 million as of July 31, 2015. PP&E included 100 pieces of equipment including the 12 drilling rigs, rig carriers, doghouses (not to be confused with your pets' kennels - these are the little containers which house the driller's controls), mud pumps, pipe carriers, service trucks, loaders, trailers, pickup trucks, forklifts and other miscellaneous machinery. Clearly, most of the asset value was in its 12 rigs.

The rigs

3 rigs were from the mid-late 90s, 3 rigs were from 2006, 4 rigs were 2010 and newer, and 2 were not specified. In the receiver's public reports, a lot of information is given about the specifications in each rig, but we are not here to pretend to know what any of those specifications mean.

What we do know is that the industry does often customize drilling rigs (which begs another question which we do not know the answer to - wouldn't the industry be able to significantly reduce the cost of a drilling rig if it standardizes more, similar to other manufacturing industries? Once new build rigs come off the initial contract 3-4 year contract, for the next ~20 years of its life, they may be sent to other resource areas that it may not have been specifically designed for. But that is another story for another (maybe never) day so perhaps there are some valuable nuances about the rigs, and perhaps not.  

The sales process

The receiver had two options to sell the rigs. One was to go through the auctioneer Maynards, and the second option which came up later, was to sell the rigs to Groundforce's majority shareholder and as it turns out also an unsecured creditor (behind the senior secured lender).

The receiver ended up choosing the latter option as it was a higher bid. The gross sales price was $12.25 million, based on the 20% sales deposit of $2.45 million.

So there you have it.

$41 million of PP&E (NBV) including 12 rigs which were on average ~10 years old (plus a bunch of other stuff), sold for $12.25 million, or ~30% of book value. Bankers beware.