NEW YORK CITY – After a relatively brisk few months, contracting activity is starting 2Q “a bit slowly,” says Evercore ISI, with nine contracts announced quarter to date. As noted in the firm’s Offshore Rig Market Snapshot, this is slightly above the seven as of this point a year ago, but below the prior two-year average of 17.5 contracts.
Nevertheless, Evercore says that it remains confident that contracting activity will pick up in the back half of April and end the month higher on a year-over-year basis, extending the positive streak to two months.
The firm noted that contract terms are averaging longer for the three floater contracts announced thus far in April at 298 days vs the year-to-date (YTD) average of 229 days, and the 2020 and 2019 average of 225 and 203 days, respectively.
Evercore says it believes that longer contract terms are an indication that the rig market is tightening. “We are optimistic higher dayrates are ahead, particularly for the floating rig market with contractors continuing to retire older and idled assets,” the report noted.
Three floaters and four jackups have been retired over the past month, increasing the year-to-date total to seven floaters and nine jackups permanently removed from the global supply.
In addition, operators continue to cold stack both floaters and jackups, with four jackups and two floaters newly cold stacked YTD. “We believe cold stacked assets are candidates for retirement, especially those cold stacked for two years or more as it becomes prohibitively expensive to reactivate these assets,” the report commented.
Of 45 floaters and 89 jackups currently cold stacked, 22 floaters and 65 jackups have been cold stacked for two years or more and are essentially obsolete, the report said.