Analyst finds signs that rig market might be bottoming

March 1, 2017
February’s global floater rig count is at 141 units, according to the most recent update of Evercore ISI’s offshore floater rig market report.

Offshore staff

NEW YORK – February’s global floater rig count is at 141 units, according to the most recent update of Evercore ISI’s offshore floater rig market report. This figure, which includes all future contracts, is only 4.8% below the organization’s base case estimate from a year ago.

The analyst firm’s Oilfield Services, Equipment & Drilling group releases the report on a monthly basis to detail global floater rig utilization rates and trends.

“Industry demand fell more sharply than we had anticipated at the end of last summer, but the gap began to narrow over the past two months and the industry is about seven months ahead of our old assumptions,” Evercore ISI said.

There are 16 floaters (excluding newbuilds) with future contracts that are expected to begin in the next 12 months.

“Interestingly this figure has increased over the last three months and we believe this may be a sign that the floating rig count bottom is near,” the firm noted. “Most of these new contracts are scheduled to begin over the next couple of months, primarily in the UK and Norwegian North Sea.

“It remains to be seen whether these new contracts are incremental or if they replace older rigs coming off contract, but overall, our base case estimate assumes the rig count increases only slightly over the next couple of months and ends the year up 4% from current levels, driven by improvements in theNorth Sea and Asia.”

The company expects the floating rig count to increase another 3% in 2018 due to higher activity in the US Gulf of Mexico, while a stronger 11% recovery occurs in 2019.

Ultra-deepwater (UDW) utilization slipped slightly and is below 60% for a sixth straight month, after averaging below 70% for only five months. UDW utilization is almost 15.5% basis points (bps) lower than a year ago, as the contracted floater count and rig supply was basically flat.

With the exception of a rig swap, all six UDW contracts announced in February were for single wells, as the analyst noted that operators are still hesitant to lock in UDW supply.

Utilization for this class of floaters has been below 90% since February 2015 and below 80% since September 2015, while the available supply of UDW rigs is at a record high of 168 units. It took eight weeks for utilization to fall from 80% to 70% and only five months for utilization to fall from 70% to 60%.

Deepwater utilization increased by 274 bps to 51%, climbing from the 40% to 50% range after

nine consecutive months, due to contractors retiring two units over the past month.

“With the exception of the occasional uptick as rigs are retired, deepwater utilization had been in free-fall since December 2013. Only one DW rig contract was announced this month, for a one-well plus one-well option offshore Australia. It took seven months for utilization to fall from 80% to below 70%, another six months to fall to 60%, and another eight months to fall below 50%,” Evercore ISI said.

Although contractors retired two units over the past month, midwater utilization was unchanged at 47% last month and has been below 50% for five straight months.

Although total rig supply fell 50 bps over the past month, utilization ticked up only 22 bps to 57.1%, as the contracted jackup count was unchanged at 308 units or, as the authors pointed out, “the lowest figure in recent memory.” There were 19 new fixtures were confirmed, with the majority for short terms of one to four wells. However, Saudi Aramco renewed two Noble jackups for five-year terms.

In addition, the report highlights global offshore rig trends over the past month. One of its findings was that despite an uptick in rig attrition, the global floater, and jackup utilization was flat at 52.5% and 57%, respectively, although deepwater utilization did climbed back above 50%.

In terms of newbuilds, one contracted floater was accepted for delivery over the past month, but shipyards and contractors deferred delivery of six floaters and 38 jackups from 2017 to 2018.

Also notable was the year’s first sanction of a deepwater project –Noble Energy’s Leviathan offshore Israel.

Evercore ISI commented that progress was appearing to be made on a few additional projects tracking for potential 2017 final investment decisions, such asEni’s Coral development offshore Mozambique, ExxonMobil’s Liza offshore Guyana, and VNG’s Pil and Blue project offshore Norway.