This week, worldwide offshore rig utilization held steady at just over 83% with 549 of 659 rigs under contract.
Since 2000, the offshore rig fleet has seen utilization rise and fall and rise again, rather significantly. The period from late 1998 to early 2000 was marked by relatively low utilization, near 70%. From early 2000 thru late 2001, utilization peaked and held near 80% dropping back off in late 2001. The next 3 years again saw relatively low utilization rates, with utilization in the low to mid 70% range. Beginning in 2004, utilization began a steady rise from around 74% up to its current level near 83%.
Since rig utilization is determined by the number of rigs under contract at a given time, an interesting indicator of rig activity is the number and length of contracts starting each month. We'll look at the trends in contracts starts by month over the last 6 years for both jackups and floaters to see what changes are occurring in the marketplace.
Jackup Startups Slowing Down
The month with the highest level of activity of any month during the past 7 years was January 2001, in the middle of the utilization peak, when 144 new jackup contracts started. Although very numerous, these contracts were also among the shortest jackups contracts during that same time frame, averaging just 65 days in length.
When the market slowed in the fourth quarter of 2001, the rate of new contract starts slowed dramatically and has not yet recovered to a comparable level, nor is it likely to do so at any point in the near future.
From 2002 thru 2004, the jackup fleet averaged about 55 new contracts starts per month, with each contract averaging about 145 days in length. Although utilization rates increased significantly during 2004 and 2005, the number of contract starts per month actually declined somewhat, falling to an average of 49 new contracts starting up each month.
The reason that utilization has grown steadily over that time is that while not as many contracts have been starting, the contracts that have been starting are continually getting longer. In 2005, average jackup contract length was 158 days, up almost 10% from the previous three year average. Thus far in 2006, average contract length for the 48 new jackup contracts starting each month has been 193 days, a 22% increase over the 2005 length and more than double the average length of contracts starting during the 2000-2001 peak.
Looking out at the contracts that have already been signed to start during the last 4 months of 2006, average contract length more than doubles to 392 days for 21 contracts per month. As the months progress, the number of contracts starting per month will increase significantly, but will still likely be lower than even the first half of this year.
Floater Contract Starts Sink As Well
Thru 2002, 2003 and 2004, the number of floater contracts starting each month averaged 25 contracts, with an average length of about 150 days. In 2005, the average number of new contract starts dropped to 24 per month, but the average length increased nearly 50% to 216 days.
For the first two-thirds of 2006, the number of floating rig contract starts per month has declined further to 22 contracts per month. At the same time, the average length for those contracts has increased a further 26% to 273 days. And the trend is set to continue for the rest of the year as well.
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