Rig utilization stands at 100% around the globe

Supply and demand will remain relatively close for jackups and semisubmersibles in the US Gulf, even following the departure of a number of rigs in 2006. Currently, 76 jackups, 30 semis, six drillships, and seven submersibles are working in the GoM. Most of them are working in shallow water.

On the plus side, the region sees strong demand in its deepwater segments. Increased exploration and production activity has boosted demand for deepwater capable drillships and semis, of which there are far too few supplied. As a result, operators are agreeing to record day rates so they can be assured access to deepwater rigs.

Drillships capable of drilling in up to 3,048 m (10,000 ft) of water are catching the largest contracts. Transocean’sDiscoverer Enterprise, for example, will earn $520,000 a day when it begins its contract for BP in the Gulf.

Central and South America

Rig demand continues to outstrip supply, with several offshore rig market segments at 100% utilization in Central America, South America, and the Caribbean Sea. Day rates continue to rise, and with several rigs scheduled to leave the Latin American market, there seems to be no end in sight for the tight rig supply in the region.

All seven drillships in Latin America are working offshore Brazil, and all will stay on contract throughout 2007. The highest day rate for a drillship in this region is $300,000, but that will jump to $475,000 next year, when Transocean’sDeepwater Discovery moves to Brazil to work for Devon Energy.

Semisubmersibles are also at full utilization in Latin America as they have been for nearly two years. As of January 2007, all 28 semis in the region were under contract. Only one is not working. While utilization has remained static for the last year and a half, average day rates have risen dramatically, and now hover around $336,000. The highest day rate for semis in the area is just under $450,000.

The jackup utilization rate in Latin America is about 91%, with 42 of 46 jackups under contract. The average day rate for a jackup in Latin America is $165,651. If rigs were available, forecasts indicate a potential 10-rig increase in jackup demand in the region in 2007.

Europe

In mid-January, all 76 rigs in Northwest Europe were under contract. The scarcity of rigs has forced European operators to tender for rigs for future drilling programs earlier than usual. The region’s rig market could come up short by as many as four semisubmersibles over the next year. As for the jackup market, 2007 will see operators confronting a range of market conditions, from a four-rig shortage early in the year to a more-or-less balanced market by year-end.

Over the last year, the Northwest Europe rig market has been very strong. However, the long-term outlook for the UK is questionable due to declining production, aging infrastructure, and increasing tax rates. These factors could discourage further exploration and production in the area.

Also, while Norwegian operators have made new discoveries and drilled successful appraisal wells, many companies find Norway a difficult place to operate because rigs need special certification, labor costs are high, and environmental restrictions are stringent, particularly in the Barents Sea, which is the most promising exploration area.

Even with these problems, more projects are planned than rigs are available to execute, which could cancel some projects.

The scarcity of rigs has resulted in some companies, Statoil ASA in particular, signing multiple large rig contracts with primary terms of four or five years with up to five additional years in options.

Mediterranean, Black Sea

Currently, 23 of the 24 rigs in the Mediterranean/Black Sea region are under contract, for a fleet utilization rate of 96%. Of the rigs in the region, 21 are working.

Egypt leads the region with 11 of the 24 active rigs, but several other area countries will see increased activity. The number of rigs working offshore Italy is expected to increase by five, while Turkey is home to two units. Libya and Tunisia are expected to see more activity as more rigs become available, although this may not happen in the next year. With the recently completed Petroleum Geo-Services offshore seismic survey, it is possible that Lebanon could throw its hat into the oil and gas exploration ring.

West Africa

West Africa is the very definition of “tight.” For months, rig fleet utilization has steamed along at 100%, and this level of activity should persist though the remainder of this year. At present, supply and demand are in balance, but by the end of the year, slight shortages can be expected.

Over two-thirds of the available rigs in West Africa will be on long-term development projects, many of which last through 2008 and several into 2010. Operators are pushing with exploratory programs as well, especially in deepwater regions.

The tight rig market keeps upward pressure on day rates, and rig owners have taken advantage of the upswing this year. At this time last year, 91-m (300-ft) cantilever jackups in West Africa were signing contracts for about $123,667 per day. Now, the day rate for these rigs is in the $165,500 range.

Semisubmersibles capable of drilling in greater than 1,524 m (5,000 ft) of water began 2006 signing deals for an average of $250,000 per day. That number has since exploded. Today, rigs with the same capability earn $430,000 per day.

Semis have not cornered the market on astounding day rate increases though. Drillships in January 2006 were signing contracts for $285,000 per day, but Eni recently awarded Saipem a contract for theSaipem 10000 at a rate of $490,000 per day. Considering that deepwater work in the region is increasing, these numbers could continue to climb.

Middle East

With 86 of 90 mobile offshore rigs under contract in the Middle East, the region’s offshore rig fleet utilization rate stands at 96%. Two of the rigs in the region are semisubmersibles, and the rest are jackups.

The most active operators include Saudi Aramco with 18 offshore rigs under contract, followed by Adma-Opco with 12, and RasGas with nine.

As with the rest of the world, day rates for offshore rigs in the Middle East have been rising, but day rates in this region are still lower than those in other rig markets. Day rates in the Middle East range from as low as $40,000 to $60,000 per day up to nearly $200,000.

One reason rates are lower in the region is that many of the contracts were signed over the last couple of years when oil prices and day rates were lower. The contracts were signed for terms lasting several years.

The majority of upcoming offshore rig requirements in the region will be for work offshore Qatar, the United Arab Emirates, and Saudi Arabia.

Caspian Sea

Half the rigs in the Caspian Sea area are under contract. The Caspian Sea fleet is made up of 14 rigs: seven semisubmersibles, six jackups, and a lone barge rig. Seven of the rigs are cold stacked, six in Azerbaijan and one, the barge, in Russia. One rig, North Drilling Co.’s semiIran Alborz, is under construction and is scheduled to begin a contract with Caspian Oil in February. The remaining rigs are working for several operators including AIOC, BP, Dragon Oil, Lukoil, ExxonMobil, and Petronas Carigali.

Asia/Pacific

Mobile offshore rig utilization in the Asia/Australia region, excluding India, is 95%, with 96 of 101 rigs under contract.

The Southeast Asia market will see more fluctuation than other regions, with both shortages and surpluses. At worst, operators seeking jackups can expect shortages as high as seven rigs. Those seeking semis will fare little better, with a market that will be short by five rigs. Drillship supply will continue to be a non-issue. Only two or three of the four to five drillships in the region are likely to be working at any given time over the next year.

Rig supply in the Far East market should continue to slightly outpace demand throughout the first half of 2007. The supply deficit will not be as bad as in many other regions since demand is expected to exceed supply by only one or two rigs.

The Australia/New Zealand region also is likely to experience shortages of no more than a rig or two. The bulk of these shortages will occur in the jackup market, but semis could incur a small deficit towards the end of 2007.

Justin Smith
ODS-Petrodata