While Chinese yards have had significant market share gains in global rig construction, Singapore rig-builders like Keppel Corporation and SembCorp Marine are holding on to their competitive edge through consistent improvement of design and localization of rig construction.

In the year to date, Chinese yards have secured 44 percent of the 71 rig contracts. The increasing prominence of Chinese yards is reflected particularly in the jack-up rig market, where they have received orders for 29 of the 56 jack-up rigs in 2013, versus the 20 jack-up rigs secured by Singapore yards.

Most of the jack-up orders went to five leading Chinese yards-- China Shipbuilding Industry Company Dalian, China Merchants Heavy Industries (CMHI), Chinese State Shipbuilding Corporation Shanghai Waigaoqiao, China International Marine Containers Raffles and Cosco Corporation.

According to Credit Suisse Research, which analyzed the customers that have placed orders with Chinese yards since 2010, close to half are new entrants which did not own rig assets previously.

The Swiss research house estimated that Chinese yards have the capacity to deliver 28 jack-up rigs per annum. With a number of Chinese yards having announced plans to invest in greenfield offshore yards, Chinese rig-building capacity is likely to increase by another nine jack-up units over the next three years, leading to a further 8 percent increase in global capacity.

With the global jack-up fleet expected to grow by 31 percent between 2013 and 2016, Credit Suisse also estimated that demand has to grow by 5 percent per year, and annual rig removal has to be maintained at the 2012 level of 16 jack-ups to keep jack-up utilization at about 80 percent.

Chinese yards could gain market share through strong government support and financing provided by Chinese banks, willingness to accept backend-loaded payment terms and lower prices, as well as through taking equity stakes in the rigs.

However, Credit Suisse pointed out that their ambitions are likely to be hampered by a lack of cost advantage in rig-building.

As rig-building requires significant financial and technical resources, there might be a divergence in the ability of Chinese yards to secure contracts with a concentration of orders with the leading yards.

In addition, Chinese yards are also likely to be disadvantaged in securing key equipment as the domestic supply chain is still at its infancy, while the lack of engineering know-how could continue to lead to execution challenges and delivery delays. Hence, more time may be needed to develop proprietary rig designs and establish their track record.

On the other hand, Singapore yards liked Keppel and SembCorp Marine are marketing their drill-ship designs, and are developing technology for other offshore equipment to improve their competitiveness. With greater customer demand for localization of rig construction, Singapore rig-builders are growing their network of global yards.

Credit Suisse believed that a three-tiered rig construction market will develop in the long term, with Singapore yards still preferred by established drillers and national oil companies.

In the middle tier will be the five leading Chinese yards which are likely to continue receiving orders from new entrants by offering attractive payment terms.

At the bottom tier are the emerging Chinese yards that might target lower-end offshore equipment in the face of more aggressive competition.

This segmentation is likely to drive a continued divergence in returns which will very much depend on yards' ability to develop proprietary rig designs and accelerate overseas expansion.