Justin Smith
ODS-Petrodata
While the downturn in the global financial markets is having an effect on just about every aspect of business around the world, the most important influence in the realm of petroleum remains the price of oil. At an oil price of over $100/barrel, energy companies had the luxury to increase exploration and production budgets and to drill more wells. With the increase in spending came a bump in demand for rigs, allowing drilling contractors to charge higher rates and to build a number of rigs on speculation.
On the other hand, when the price of oil plummeted below $40/barrel, operators and contractors were forced to reevaluate their game plans. Oil and gas companies became more selective when it came to drilling wells, and contractors now have rigs under construction, some well advanced, but lacking contracts.
To illustrate that point, a total of 180 rigs currently are under construction around the planet; however, according to ODS-Petrodata’s Offshore Rig Locator, of those rigs, 86 do not yet have contracts. Jackups are facing the toughest challenge as 54 of the 76 units under construction are without contracts. The continued push towards deepwater work will provide jobs for the floating rigs, hence, only 12 of the 55 semis and 16 of the 43 drillships under construction are uncontracted.
If the price of oil can settle somewhere above $50 to $60/barrel, almost all of the new rigs eventually would find work. The extremely high day rates that some rigs started earning this year may come down some to coincide with the oil price, but at least more rigs will be working.
At the current oil price, the demand for all types of offshore rigs will remain flat, according to ODS-Petrodata’s latest research. As new units are delivered into a flat market, fleet utilization will slide. Currently, worldwide offshore rig utilization stands at 87.6% as 647 of the world’s 739 jackups, semis, drillships, barges, tenders, submersibles, and arctic rigs are contracted.
US Gulf of Mexico
From January 2008 to January 2009, the total fleet size in the US Gulf of Mexico declined from 125 rigs to 114, while the number of rigs under contract dropped from 96 to 86. Rig fleet utilization now stands at 75.4%. Most of the GoM decline has been in the jackup market, where utilization has dropped to 66.7%. As is typical in today’s deepwater focused industry, drillship utilization stands at 100%, and semisubmersible utilization is just above 96%.
The region had a busy hurricane season in 2008, with hurricanes Gustav and Ike causing major disruptions. Three jackups were destroyed by Hurricane Ike, and a further three were heavily damaged but have since been repaired. Newbuild jackupsRowan Mississippi and J.P. Bussel have joined the fleet, helping to fill the gap left by the destruction of rigs.
The jackup market in the US Gulf is expected to be flat in 2009. The jackup surplus in the region stands at over a dozen rigs.
In the US Gulf semisubmersible market, a small surplus will lead into a balanced supply/demand situation towards the end of the year, while the fleet size should grow slightly. The drillship market is in balance, and if more rigs were available, work would be too.
Day rates remain strong in the region. High-end jackups earned day rates of up to $195,000 a year ago, and are now earning between $130,000 and $220,000/day. The floating rig market is experiencing a substantial increase in day rates. Semis capable of operating in 5,001 ft (1,524 m) to 7,500 ft (2,285 m) are now pulling in day rates of $540,000 to $605,000. Day rates for drillships have also jumped considerably, as they are peaking at $650,000/day right now, up from the $525,000/day they were earning one year ago.
Latin America
The number of jackups, semisubmersibles, and drillships available for charter in Latin America stands at 101, and of those rigs, 97 have contracts, for a utilization rate of 96.0%. In a region where most of the floaters are operating off the coast of Brazil, all 40 semis are contracted, as are all 11 drillships. Of the 50 jackups, the majority of which are working offshore Mexico, 46 have contracts.
Demand for semis, jackups, and drillships in Central and South America is expected to grow through most of the next year, though jackup demand will likely dip slightly in late 2009. Much of the demand in the region will be driven by Petrobras’ exploration of its massive pre-salt reserves offshore Brazil. The market was expected to expand in the coming years with the addition of 28 ultra deepwater floating rigs contracted by Petrobras. However, economic uncertainty has delayed the contracting process.
Day rates for jackups in Latin America have stayed about the same over the last several months. The current high for jackups is $200,000, up from $185,000 a year ago. Floating rigs, however, have seen a split in day rates, with floaters dipping some, while drillships have seen a major spike. Deepwater-capable semis are pulling in day rates up to $401,000, down from a maximum of $520,000 a year ago. Drillships, on the other hand, had a high of $320,000 12 months ago, but now are pulling in rates up to $650,000/day.
Europe
The rig fleet offshore northwest Europe has seen little change over the last several years. The North Sea rig fleet is the same size now as it was a year ago, with a total of 74 units working. The region saw its streak of months and months with 100.0% fleet utilization end this year, and currently 73 of the 74 rigs are contracted, for a utilization of 98.7%. One of the 37 semis does not have a contract, but all 35 jackups have contracts, as do both drillships that are in the region.
Source: ODS-Petrodata
Many smaller operators in the area will be highly susceptible to lower oil prices and the global economic crisis. Average demand for jackups is expected to fall, as small operators hire a large portion of the North Sea jackup market. However, demand for higher specification semisubmersibles used by some companies will likely grow over the same period. An active UK licensing round may help buoy the market in the future.
While fleet size and utilization in the North Sea has not changed much over the last year, the top of the range of harsh standard and high specification jackups are earning over 30% more now than before. They are earning a peak rate of $405,000/day, up from a high of $300,000/day this time last year. Semis have also seen an increase from the $350,000/day to $493,000/day they were making last year, and are now earning day rates between $410,000 and $530,820.
Mediterranean/Black Sea
All but one of the 27 rigs in the Mediterranean/Black Sea region are under contract, for a fleet utilization rate of 96.3%. Of the 27 rigs in the region, 23 are actually working. The one rig not contracted is jackupGSP Saturn, which is at a shipyard in Constanta, Romania, being converted into a cantilever rig with specs similar to another jackup, GSP Jupiter.
The rig fleet in the region is primarily jackups, with six semisubmersibles and one drillship working there as well. All of the floaters are operating in Mediterranean waters, and a number of jackups are finding work in the Black Sea.
Egypt leads the region with nine of the 23 active rigs, but several other countries see an increase in activity. Libya and Italy both have more rigs operating in their waters than a year ago, with five now off Libya and four offshore Italy. One country that rarely sees any offshore exploration is Israel, but currently semisubmersibleAtwood Hunter is drilling there for Noble Energy. Both rig supply and demand are expected to remain flat over the next 12 months and nearly in balance, but very small deficits could pop up in the semi and drillship markets late in 2009, with a small surplus in the jackup market.
West Africa
West Africa offshore rig fleet utilization is at 100.0% for drillships, 92.3% for jackups, and 91.7% for semis. Overall, utilization in the area stands at 93.2%, with 55 of the 59 rigs in the region having contracts.
West Africa offshore rig demand is expected to grow. The demand for jackups, semis, and drillships is expected to rise by about half a dozen rigs each over the next year. However, equipment constraints, particularly in the floating rig market, will cause delays in some drilling programs.
Day rates off West Africa are some of the highest worldwide. Jackups are earning between $148,000 and $244,000, which are prices that have not changed much in the past few months. Semisubmersibles experience a wide range of day rates, with semis with water depth capability of up to 5,000 ft (1,524 m) earning from $365,000 to $495,000/day. However, deeper rated semis are pulling in day rates between $620,000 and $650,000. Drillships are earning $450,000 to $495,000/day.
Middle East
With 96 of 104 mobile offshore rigs under contract in the Middle East, the region’s offshore rig fleet utilization rate is 92.3%. Due to the shallow waters through out the Middle East, all the 104 rigs are jackups.
Outside the US GoM, the Middle East has some of the lowest day rates in the world. Day rates in the region actually have taken a slight downturn over the last year. While the low end of the range has improved to $107,000/day, up from $90,000 a year ago, the larger jackups are pulling in a maximum of only $161,595, which is a drop of nearly $40,000/day compared to one year ago.
The most active operators include Saudi Aramco with 29 offshore rigs under contract, followed by Adma-Opco with nine, and Maersk Oil with six. Jackup demand in the region is expected to climb by over 20 rigs over the next year, and a supply shortfall may develop.
Caspian Sea
Exactly half of the 12 rigs in the Caspian Sea area are under contract. Of the 12 rigs in the Caspian, six are semisubmersibles and six are jackups. Four rigs in Azerbaijan are cold stacked, one more there is warm stacked, and one in Kazakhstan is hot stacked. The remaining rigs are working for operators BP, SOCAR, Dragon Oil, Lukoil, and Petronas Carigali.
Construction has finally been completed on COSL-managed semiIran Alborz in Iran after years of setbacks. It currently is undergoing acceptance testing before it is scheduled to begin working for NIOC in February, but there is no guarantee it will make that deadline.
Asia/Australia
In the Asia/Australia region, 106 of the 110 jackups, semisubmersibles, and drillships are under contract for a utilization rate of 96.4%. Only four jackups are without contracts at presstime.
The demand for jackups in the region might see a small rise mid-year, but should return to current levels by the end of 2009. That said, supply already is ahead of demand now and the surplus will grow during the year unless freshly delivered jackups pick up contracts and move out of the area. Semi demand in the region will climb some over the period, while supply will experience only a modest rise, leading to a minor deficit. Little if any change is anticipated in the drillship market in the Asia/Pacific region.
Day rates for jackups in the region have stayed about the same over the last 12 months, aside from small growth in Australia and New Zealand, and range from about $130,000 to $252,000. The range of rates that semis are earning has also been stagnant between $143,500/day and $550,000/day. However, a year ago drillships were earning a maximum day rate of about $285,000, but now they are ranging from $245,000 to $640,000.
