Report shows signs of contracting stability in offshore rig market

Offshore staff

NEW YORK – According to Evercore ISI’s February Offshore Rig Market Snapshot, a total of 11 new contracts have been announced to-date this month.

The report, issued monthly by the analyst firm’s Oilfield Services, Equipment & Drilling group, focuses on trends in contracting activity and day rates, fleet operations, and near-term contract coverage, which the firm believes is a key indicator for anoffshore drilling inflection point.

Contracting activity

Evercore ISI found that February’s total of 11 new contracts so far is in line with a month ago, as the pace of offshore contract awards have been relatively stable since the start of the year. A total of 21 contracts were confirmed in January, equitable with the total in January 2016 and above the 16 logged in January 2015. However, contracting still has a way to go before catching up to January 2014’s 35 and January 2013’s total of 42.

Of the 14 jackups contracted this January, five were for more than one-year terms inSaudi Arabia, Qatar, and the UK. So far in February, only one jackup and one floater have been secured for at least a year, in Thailand and Australia, respectively. Contracting activity will need to accelerate in the back half of this month to keep pace with the 30 contracts announced last February.

Fleet operations update

Rig contractors retired five floaters and three jackups over the past month, bringing the total to 74 floaters and 37 jackups since 2014.

“We believe the figures are actually a bit higher, as at least eight jackups are classified as held for sale and six floaters have been cold-stacked for more than two years,” the report said.

Meanwhile, 38 jackups and seven floaters (including theENSCO DS-10) previously scheduled to be delivered in 2017 have been deferred to 2018 and 2019 over the past month. One contracted floater, CIMC Bluewhale I, was accepted; however, Evercore ISI noted that it expects the number of newbuild deferrals to grow in the coming months, with only three newbuild floaters (excluding Petrobras) and five newbuild jackups currently contracted.

Contract coverage for 2017 improved by 40 basis points (bps) to 38% for the global floater fleet and by 290 bps to 38% for the global jackup fleet. While some of the improvement from last month was due to rig retirement, within Evercore’s coverage,Diamond Offshore led with a 410 bps improvement to its 2017 floater coverage to 47% from the Ocean Valor extension while Atwood’s 2017 jackup coverage increased to 19% from 0% with the new Atwood Orca contract. In addition, Ocean Rig’s 2017 floater contract increased by 330 bps to 38% due to an extension on the Leiv Eiriksson until early May. Meanwhile, North Atlantic Drilling’s West Alpha and Seadrill’s West Hercules are newly cold-stacked.

Contract coverage

“We continue to expect the offshore cyclical downturn to break in 2017, withdeepwater and shallow-water rig counts, dayrates, and utilization bottoming and operators accelerating the pace of offshore development and equipment and services contracting,” the report closed. “Our expectations for the offshore subsector remains relatively modest; however, as the duration of the bottoming process will depend greatly on the oil price through the first half of the year.”

02/16/2017