Analyst sees utilization rates slipping

Jan. 4, 2017
Evercore ISI’s Oilfield Services, Equipment & Drilling group released its latest monthly offshore market update.

Offshore staff

NEW YORKEvercore ISI’s Oilfield Services, Equipment & Drilling group released its latest monthly offshore market update.

In it, the analyst firm emphasized findings from its previous report indicating that 2017 will see a break in the downturn. It sees deepwater and shallow-waterrig counts, day rates, and utilization bottoming, and operators accelerating the pace of offshore development and equipment and services contracting.

“Our expectations for the offshore subsector remain relatively modest; however, as the duration of the bottoming process will depend greatly on theoil price through the first half of the year. Gains will also not be broadly felt, in our view, favoring contractors that have superior asset quality, a low operating cost basis, and low capex,” the report said.

The contracted floater count ended the year at 150, down 2.9% from last month and 30% from one year ago, while the contracted jackup count at 307 is down 1.5% sequentially and 15% year-over-year. However, the working floater count increased for the first time in five months while the working jackup count increased for a second consecutive month, which is the first time this has occurred since July 2014.

Ultra-deepwater utilization slipped another 110 basis points (bps) to 56.9% and is down almost 20% points from a year ago. The update found 95 floaters contracted, down 32 units, while the supply of rigs increased by one to 167.

Deepwater utilization slipped 43 bps to 42.1% with 16 of 38 units contracted; utilization is down 14.5% points from a year ago, when 27 of 48 deepwater floaters were contracted. Midwater utilization fell below 50% over the past month, with 39 of 83 units contracted. Although the industry scrapped more than 12 midwater floaters over the past year, utilization has fallen by 17% points when 62 of 95 units were contracted.

The firm said that there are 48 floaters and 104 jackups under construction or on order for delivery through 2020, including 29 floaters and 76 jackups for 2017.

“We expect rig contractors to continue deferring the majority of these planned 2017 deliveries, noting only two of these floaters and eight jackups were originally scheduled for 2017,” Evercore said.

A total of 48 ultra-deepwater rig contracts were announced in 2016, up from a total of 39 in all of 2015, but with disclosed day rates averaging $271,000 or down by an average of 20% from last year. Meanwhile, a total of 24 deepwater rig contracts averaged $192,000, down 28.5% from a year ago for 16 contracts. However, Evercore said that this figure is likely too high as the majority of deepwater contracts signed in 2H 2016 did not disclose day rates.

Similarly, only seven of the 16 midwater floater contracts signed in 2016 disclosed average day rates of $144,000 or down 28.4% from the year ago average of $201,000 for 26 contracts. Lastly, 160 jackup contracts were announced last year with day rates averaging $86,000, or 18.2% lower than the year ago average of $105,000 for 263 fixtures.