Weekly Offshore Rig Review: Year-End Utilization - Jackups
Worldwide offshore rig utilization moved down slightly this week to 83% even though the number of rigs contracted held steady. The decrease was caused by the WilPower jackup leaving the shipyard and beginning its sea trials before starting its bareboat charter with Arabian Drilling at the end of the month.
While current offshore rig utilization has been holding close to the same levels for most of the year, the direction that utilization rates are heading is always a key concern. This week, we'll be examining which segments of the jackup rig fleet have the best potential for steady and increasing utilization over the last 4 months of the year.
The worldwide jackup fleet currently consists of 397 rigs. By the end of the year, another 4 jackups are expected to be delivered with a 5th one arriving in either late December or January. So, by the end of the year, the fleet is expected to grow by slightly more than 1% to 400 rigs.
Of the 397 jackups currently in the fleet, 346 of those are under contract this month, for a utilization rate of 87% across all jackups. However, looking at the major sub-types of jackups, utilization varies significantly and the outlook for each of those sub-types is also somewhat different.
Independent Leg Cantilever (ILC)
The ILC segment of the jackup fleet is by far the largest with a current total of 293 rigs, which constitutes about 74% of the jackup fleet. Of all the jackup types, this segment of the fleet is the most geographically dispersed with fleets of 12 or more rigs in 8 markets around the world. This group has the highest current month utilization rate of 91% based on 268 of 293 ILC jackups having August contracts.
Looking forward to the latter third of this year, this segment is also set to experience the biggest drop in the number of rigs under contract. At this time, 259 ILC jackups already have contracts for September. Assuming no new contracts were started between now and the end of September, the number of rigs contracted would drop by 9 rigs and fall to 88% utilization in September.
Of course, that scenario is rather unlikely. For ILC jackups over the last year, about 17% of contracts that have already begun execution have been signed within 30 days of their start date. A further 12% of contracts have been signed 31 to 60 days before their start dates. So, nearly a third of all ILC jackup contracts that have been signed and executed in the last year have been signed within 60 days of their start date.
In the last 30 days, RigLogix has tracked a total of 48 new ILC jackup contracts being signed. Looking at the average number of new ILC contracts signed over the last 90 days, an average of 44 contracts have been signed each 30 days. So, for the next 30 days, it is reasonable to expect about 45 new ILC contracts to be signed. If the averages from the last year hold, about 7 or 8 of the contracts would begin in by the end of September.
An estimated 7 or 8 contracts starting between now and the end of September would put about 266 or 267 ILC jackups under contract in September. Given the fact that 9 ILC contracts are set to terminate at the end August, it would not be surprising to see at least 2 or 3 contracts carry over into September. In that scenario, September utilization could be slightly higher than current utilization, even with the introduction of a new rig to fleet later this month.
Looking past September, the number of rigs with contracts in place declines by about 10 rigs in October and November, falling to 236 of 297 rigs having contracts for December, a 79% utilization rate. Given that 45 contracts are likely to be signed in the next 30 days, about 5 of those are likely to begin in October. In addition, the estimated 7 or 8 new September contracts will mostly carry over into the later months of year. As such, October utilization will be close to September's utilization rate, but into November and December utilization will most likely fall slightly amongst ILC jackups, but only by a few rigs.
Independent Leg Slot (ILS)
The ILS segment of the jackup fleet is only about one tenth the size of the ILC fleet, having just 31 rigs, so its impact on overall utilization is much smaller. However, this segment is experiencing strong utilization at 90%, and that level is likely to remain steady through the end of the year. Currently, 90% of the ILS fleet is contracted though October and 84% of the fleet is already contracted through the end of the year.
Given the fact that 2 to 3 ILS contracts have been signed per month over the last 3 months and that about 60% of ILS contracts have been signed within 60 days of their start, it is possible that as many as 5 or 6 new ILS contracts could be signed and begin before the end of the year. As such, utilization could easily rise above 90% in November or December.
Mat Cantilever (MC) and Mat Slot (MS)
The Mat rigs are a regionally important segment of the jackup fleet in the US and Mexican Gulf of Mexico. Of the 72 rigs the compose this segment, 62 reside in the GOM. Utilization among these rigs is significantly lower than among independent leg jackups. Mat slots currently have 56% utilization for August, and mat cantilevers have 73% utilization for the month. Combined utilization for these mat rigs stands at 67%.
Looking forward to September and October, utilization is already set to move up, since there are more mat rigs contracted in those two months than there are currently contracted. For October, 50 mat rigs already have contracts for work. Past October, the number of rigs contracted declines to 41 rigs in December.
Given that 20% of mat rig contracts are signed within 30 days of their start date and another 24% of MC and MS contracts are signed between 31 and 60 days of their start, it is quite possible that several new contracts will be picked up before the fourth quarter. Over the last 3 months, an average of 16 new MS and MC contracts have been signed each month. If that rate continues, another 7 or 8 mat jackup contracts could start before the end of October pushing utilization up to 57 rigs, which is nearly 80% utilization. As such, it is likely that mat cantilever and mat slot jackup utilization will rise over the next two months and then dip slightly with the onset of winter in the GOM, but still remain close to this year's peak utilization of 54 rigs in July.
In next week's Offshore Rig Review, we will examine the potential utilization scenarios for the more than 200 floating rigs of the world.
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