Momentum returning to offshore rig utilization

Data from Westwood Global Energy’s RigLogix service shows a material utilization recovery for jackups and drillships over the last 12 months.

May 13th, 2019
Marketed Jackup, Semisubmersible, and Drillship Utilization (June 2017 – April 2019)
Marketed Jackup, Semisubmersible, and Drillship Utilization (June 2017 – April 2019)

Offshore staff

LONDON – Data from Westwood Global Energy’s RigLogix service shows a material utilization recovery for jackups and drillships over the last 12 months.

Drillships have seen marketed utilization increase from 55% in May 2018 to 65% today, while overall marketed jackup utilization is now nudging 70%, also up nearly 10% from one year ago.

Although the utilization improvement has led to some selected day rate increases, it generally takes 85-90% utilization before day rates begin to accelerate at a faster pace, according to Terry Childs, head of RigLogix. In addition, there is always a lag period between utilization increasing and day rates following suit.

New contract fixtures for jackups, semis, and drillships have so far in 2019 generally trended up, according to RigLogix data, although not every fixture has been an increase over the previous level. Nevertheless, some regions have reached the 85-90% utilization level, and as a result, there are some interesting regional themes emerging.

According to Childs, the Southeast Asia jackup fleet can be called a tale of three markets, at least as it pertains to day rates. A few recent contract signings have been at $80,000 or more, and reports are that some international rig owners are routinely bidding new work at or above that level. Meanwhile, indigenous rig owners, especially in Vietnam and Malaysia, are now getting rates in the $69-75,000 range. Finally, some other rig owners have continued to secure work at rates of $50,000 or less, where rates have been the past few years.

For jackups, RigLogix data shows that best case marketed utilization is 76%. There are nine cold-stacked jackups and five others that will be leaving the area soon, removing them from marketed consideration. Of the remaining 10 warm-stacked jackups in the region, none are said to be ready for work without 30-60 days or more of shipyard time. More importantly, nine of the 10 also fall out of favor with operators as they either have no work history (newbuilds) or have been idle for more than six months, Childs said.

While 76% utilization is a substantial improvement for the region, it is well below the level needed to spur day rate increases. However, with the rig specifics imposed by operators, there are virtually no available jackups; hence rates have risen despite the 10 idle units. Although some operators are said to be relaxing these requirements, it has so far not made much of an impact.

RigLogix data shows there are 40-50 drilling programs ranging in status from an expression of interest to ongoing tender and ranging in duration to a single well to over a year, so there is plenty of work for the jackup fleet. Whether rig owners decide to mobilize rigs to the region – that can satisfy work requirements – remains to be seen, he said.

For floating rigs, outside the Norway harsh-environment semi market, the segment getting the most attention is the ultra-deepwater floating rig fleet (units rated to work in 7,500 ft or more). As of May 1, utilization of this fleet stood at 63.3%, with 107 of 169 units either working or committed to future contracts. Utilization of the marketed fleet, which totals 139, is 76.9%. The latter percentage is claimed to be the true barometer of the market since cold-stacked rigs are not usually marketed.

However, with the advent of what rig owners call “smart-stacked” or “preservation-stacked,” the time required to get those rigs back into service is considerably shorter. In addition, as seen in recent Petrobras rig tenders in Brazil, three cold-stacked units in the US Gulf of Mexico were bid for work, so the automatic exclusion of these units in not always a given, Childs said.

Operators in the so-called Golden Triangle – US Gulf of Mexico, South America (not just Brazil), and West Africa – have chartered floating rigs, with a few at new market-high day rates of more than $200,000, according to RigLogix data. However, a few of these come with asterisks as they include add-ons such as for integrated services or managed-pressure drilling operations, leaving the “clean” rate somewhat lower. Second, most of these newly-awarded contracts will not begin until the second-half of 2020 or later, and generally rates for contracts with a start date over a year away will be higher. The fact that some operators are committing to a rig that far in advance is a clear sign that they can see the writing on the wall, Childs said, and are looking to sign up rigs in a lower rate environment.

According to RigLogix data, 35 of the 107 (33%) ultra-deepwater floating rigs working/committed are contracted into 2021 or later. Another 56 have contract end dates within the next year, but 14 of those have options that will likely be exercised and will keep them working for the remainder of 2020.

According to Childs, rig owners sometimes will try to strategically position their fleets in areas they believe the future hot spots are and where they have the best chance of securing work. Many times, a rig owner might take a lower day rate for contract in a particular region with the hopes of securing additional work once it is there. Stacking locations are not chosen lightly either. For instance, Las Palmas, off the Canary Islands, has become a major rig stacking area in recent years, not only due to its benign climate, but also it provides quick and easy access to several different regions.

RigLogix’s Rig Tender data shows that there are currently 199 drilling programs planned worldwide over the next three-four years that designate either a semi or drillship to be used. Of course, not all of these will require an ultra-deepwater floater, nor will all of them end up being drilled, but there will also be new plans added, so there should be enough work to increase ultra-deepwater rig usage in the coming few years, Childs said.

In the Norwegian North Sea, harsh-environment semisub utilization is high and day rate fixtures have consistently risen, with several of the most recent contracts signed at or above $300,000. Currently, there are around 85 drilling plans for floating rigs in the region, and the use of ultra-deepwater rigs has increased in recent months.

Africa is another region where rig demand is expected to increase over the next few years. Currently operators have 88 drilling plans for that area, including the west, south, and east coasts. Asia/Pacific – Southeast Asia, Australia, and the Far East – currently tout 95 drilling plans for floating rigs. Finally, Central and South America, from Mexico down the coast of South America, has 56 floating rig drilling plans. In all these regions, several discoveries have been made in recent months, Childs said, and that has in some instances spurred other operators holding nearby acreage, in some cases in different countries, to accelerate their plans.

According to RigLogix, the base case suggests that by 2020 fixture rates will have improved materially and rates for units on contract will follow suit, albeit with the usual lag reflecting the time between fixture and starting contract. By 2021, day rates for rigs operating are expected to increase by at least 15%.

With so many idle units in the current market, rig owners have not hesitated to bid rigs from other regions if they believe it fits the criteria for the requirement. There have been contracts awarded for work off Senegal to rigs currently in the US Gulf of Mexico, in the Mexican Gulf to a newbuild rig in China, and in Brazil to two rigs that were both idle in Greece. With some rig owners willing to absorb mobilization costs and/or make concessions perhaps normally not made, that will sometimes make the difference, Childs concluded.

05/13/2019

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