Over the last quarter of 2010, the drilling offshore makers enjoyed a status of stability in the jackup market. The last eight months, the global jackup utilization counted for 80% since the beginning of 2010. However, the supply-side of the equation has grown with 13 jackups delivered and 11 additions are still expected before year-end. In aggregate there are 366 jackups currently marketed around the world, out of which 290 are working
Besides marketed jackups, the number of stacked rigs where reinstatement remains an option is 135 units (approximately half of these are cold-stacked and may require extensive repairs or refurbishment before re-entry into the marketed fleet is possible).
Geographic Distribution of jackups
|Gulf of Mexico||78||56||$80,000|
|Middle East /Eastern Europe||127||100||$115,000|
|Africa (mainly West Africa)||21||18||$115,000|
On global basis, the day rates have been trending down since March 2009. While, utilization has averaged nearly 81% from then until now, suggesting that rigs without contract have been able to find work, the negative slope on prices reveals that the new contracts are at significantly reduced rates versus the old contracts. Year-to-date, day rates have fallen 13% to an average of $115,000/day. Unless commodity prices fall rapidly from current levels (i.e. $70 crude, $4 natural gas), day rates for jackup rigs appear stable at current levels.
The three key drilling contractors by number of rigs available varies from region to region. In aggregate the twelve contractors that filled the top-three spots on a regional basis held nearly 60% of the market. The remaining 40% of the jackup market is dispersed among 61 contractors. Looking at demand we found the industry’s appetite for jackup rigs was more dispersed. The top-three operators by region controlled an aggregate 49% of the jackups currently active.
Africa: Rigs Utilization and Day Rates
During the month of August, the utilization counted for 86% for the 21-jackup rigs situated primarily off the West African coastline. This was higher than its annual average of 70% in 2009, but below its second quarter 2010 level of 91%. Political instability and riots, particularly within Nigeria, have been the key disruptive factors that have discouraged operators from optimizing their development of this region. Should the region’s political environment hold the course over the remainder of the year, and then we would anticipate that utilization would continue to range around 85% to 90% levels. Day rates along the African coastline peaked in June of 2009 at a rate of nearly $ 198,000/day. Since then, rates in the region have declined to 42%. Of late, pricing appears to be stabilizing and the average August day rate was $115,000/day. Of the 18 rigs that are currently contracted, six units are premium jackups (which we define as independent cantilever (IC) rigs capable of drilling in water depths greater than 300 feet. Premium jackups command higher day rates in general. Recent fixtures for the region have ranged between $ 85,000/day to $ 115,000/day with premium rigs setting the higher end.
Middle East/Eastern Europe Utilization and Day Rates
Industry commentary points to subsiding demand for rigs in the Middle East. This follows a gradual recovery of utilization that began after utilization bottomed out in August 2009 at 75%. During 2010, rig utilization has hovered around 79% for the 127-jackup rigs marketed in the Persian Gulf, Black Sea, Mediterranean, and the Red Sea. This was true for the month of August as well. Leading edge pricing for standard rigs is said to be between $60,000 to $70,000/day. This compares to the current average of $115,000 for all rigs operating in the region. Depending on the location, premium rigs are commanding rates between $112,000 to $189,000/day with the highest fixtures set in the Persian Gulf. Average day rates in the Middle East/Eastern Europe peaked in May of 2009 at $130,000/day when there were a dozen fewer rigs marketed to the region. Current competitive pressures are heightened in the near-term considering 34 rigs roll-off contract between now and year end. The headwinds are greatest for standard 300’ rigs and those that operate in shallower water depths.
Gulf of Mexico Utilization and Day Rates
During the month of August, the utilization was 73% for the 78 jackup rigs marketed in the Gulf of Mexico. Back in 2009, the data shows an annual average of 74%. Utilization had dropped to as low as 66% during August 2009, but since that time, there have been a strong recovery mode up until the accident of oil spill. The recent steep drop is quite illustrative of how the uncertainties manifested in the drilling ban on deepwater, permit delays, and issuing new rules have collectively weakened demand for jackups in the region. Day rates peaked two years ago in March 2009 at a rate of $132,000/day. While current pricing has stabilized at around $80,000/day, the average is very misleading due to the diversity of rig types operating in the region at both the high end and the low end with few standard jackups (23% of all rigs in region) contracted. Recent fixtures for premium rigs are between $110,000/day to $140,000/day and Rowan Companies is the owner of a majority with plans to deliver additional units in 2009 and 2010. At the other end of the Hercules and Seahawk are providing rigs suited for shallow water drilling with recent fixtures ranging from $30,000 to $40,000/day. Standard jackups in the region are competitive at rates between $50,000 to $60,000/day.
Recently, due to the repercussions of the new rules governing offshore drilling, of the 53 jackups being marketed for work in the Gulf of Mexico, there are nine jackups that collectively hold 12 tentative contracts awaiting BOEM permit approval. The new NTL-06 regulations have been reported as one of the major sticking points causing permit delays. NTL-06 deals with the rules that cover environmental concerns and response times should a blowout occur. Peak hurricane season has also been cited as another reason for near-term reluctance by operators to sign up jackups. The majority of the jackups with long-term contracts have permitted work through late September/early October. However, if the next permit in the operator’s program has not been secured, then the rig will have some idle time until a permit can be obtained. From the point of view, the government is approving fewer permits and taking longer to do so. Prior to the oil spill, the Minerals Management Service “MMS” (now the Bureau of Environmental Measures “BOEM”) was approving on average 37 permits monthly with an average approval time of roughly six days. Over the last four months permitting approvals by the BOEM have dropped on average to just 12 per month while the average approval time h as increase to nearly 18 days.
It appears that operators are slowing their pace of applications for new approvals. Specifically, the average number of APDs submitted was nearly 36 per month prior to the oil spill and the government’s subsequent response. Now operators are requesting permits at a rate of eleven per month on average. The month of August ended up with fewer requests than the recent average. Furthermore, prior to the changes approximately 65% of all requests were approved within the month requested. Since then the number of approvals granted within the same month requested was less than half of all permits filed. The agency needs time to implement new rules and the timing necessary to interpret and implement the new rules. Industry commentary suggests that operators are less focused on building an inventory of drilling projects and instead are pouring more resources into ensuring that the jobs nearest to commencement are approved to proceed as scheduled. Drillers may find it more difficult to pinpoint demand and the number of rigs bidding on the spot market for short-term work may increase.
Asia Pacific/Australia Utilization and Day Rates
Utilization was 82% for the 94-jackup rigs marketed in the Asia Pacific region during the month of August. This was a little weaker than its annual average of 85% in 2009, but consistent with its second quarter 2010 level of approximately 81%. Day rates depend on the location; Southeast Asia comes first to mind where rates have started to strengthen for premium rigs as evidenced by the recent fixture of 128,000/day recorded in Indonesia. Overall day rates peaked two years ago in August of 2008 at a rate of $169,000/day. Current pricing is holding around $124,000/day. Of the 75 rigs that are currently contracted, recent fixtures for the region are between $105,000/day to $129,000/day.
Although Asia Pacific is known as a large jackup market, demand for mid-water floating rigs is also picking up, though contracts are usually of shorter duration than before, according to Jim Long, area operations manager for “Northern Offshore” explained that some contractors have opted to “cold stack” their rigs as opposed to working them on a short-term basis, and wait for a market that yields some term. The start-up and wind-down costs, along with idle periods in between, make this a viable strategy in many cases. That leaves opportunities for direct continuation if your rigs are already working. On the jackup side, there is growing preference for newer and bigger jackups as an encouraging trend for the fleet of modern jackups. Operators are waking up to the fact that the newer premium jackups can drill wells more efficiently and quicker than the 300-ft jackups built mainly 25 to 30 years ago. As a result, there is a growing bifurcation (in day rates) between the rig classes, but the operators are evaluating that it is a price worth paying. There is certainly a difference in rates between the high-spec jackups and the older ones – approximately $30,000/day to $40,000/day, but more operators appear willing to pay that difference.
By Mostafa Mabrouk, Vice Chairman Assistant for Economic Affairs, Ganope