To start 2007, worldwide offshore rig utilization has moved back up to 84% with 557 of 663 rigs contracted.
For the inaugural Offshore Rig Review of 2007, we will be visiting a region that is of ever growing importance to the supply of oil to the world's markets - West Africa.
West Africa Wellness
With its production growing and new discoveries being made regularly, Angola decided to end 2006 by flexing its clout and joining OPEC. That brings the second largest West African oil producing nation into the cartel along with Nigeria, the leading West African oil producer, and it brings the OPEC share of West African oil production up from 47% to 78% of 5.2 million bpd.
While these are somewhat mixed signals for international oil producers, the overall outlook for West African oil production is promising. The region has been growing steadily in terms of production, and rig activity, particularly in deep waters, has increased markedly over the last several years with no signs of stopping. In fact, there are currently more deepwater rigs in West Africa than at any point in the past, and by mid-year that number is set to increase more than 15%.
We'll be examining these trends among deepwater rigs working offshore West Africa in the remainder of the article.
The last six years have seen several cycles in West African deepwater rig utilization. The first cycle began in March 2001 when utilization bottomed out at 66% utilization for the month with 12 rigs in the region. After that, utilization steadily increased to a peak of 100% in March 2002 with 12 rigs working, although the deepwater fleet had shrunk to 10 rigs during that year before climbing back up. Utilization then experienced a quick decline to 70% with a fleet size of 13 rigs in September 2002. This marked the end of the 2001-02 cycle and the start of a longer growth cycle.
From September 2002 through July 2003, West Africa deepwater rig utilization rose back from 70% to 100% with 14 of 14 rigs in the region contracted. Utilization rates dropped off again beginning in August 2003 as the overall fleet expanded to 17 rigs and created some excess capacity. This downward trend continued until June 2004, when utilization reached 64% with 10 of 13 rigs having contracts.
Since June 2004, the utilization rates of deepwater rigs offshore West Africa have been generally increasing or holding steady with some minor fluctuations. By mid-2005, utilization rates had returned to 100%, and the deepwater rig fleet had increased in size to 18 rigs. Over the last 18 months, utilization has held between 90% and 100%, with the majority of months in 2006 seeing 100% of the rigs in the area contracted. At the same time, the size of the fleet has remained fairly constant, ranging from 16 to 19 rigs during that time.
Looking forward to 2007, the West Africa deepwater fleet looks to be larger and busier than ever, with at least 19 rigs already contracted to work every month out of the year. The current fleet of 18 rigs in the region places West Africa on par with Brazil as the second leading region in terms of deepwater fleet size, and West Africa is poised to move well ahead of Brazil in both total fleet size and number of rigs contracted, making it second only to the US GOM with its fleet of 27 rigs.
The current average day rate for West African deepwater rigs is significantly higher than the average just one year ago in January 2006. At that time, these rigs were averaging day rates of $187,057, which amounts to a one-third (33%) increase in day rates in one year's time. In the previous January (2005), day rates were averaging $153,297, which shows a 22% growth in day rates over the course of 2005. Prior to 2005, average day rates for West African deepwater rigs had generally been declining.
Given the large fleet size and climbing day rates, 2006 was a record-setting year for the West African deepwater rig market in terms of individual rig day rates as well as overall revenue generated by rigs working in the region.
While 2006 was a banner year for deepwater rigs in West Africa, 2007 is set to surpass even its records. With the largest fleet in the region's history, long-term contracts already in place for as many rigs as have ever worked in the region, and day rates that continue to climb, 2007 will be a milestone year for the drillship and semisub fleet offshore West Africa. Just looking at contracts that are already in place for January 2008, a fleet of at least 18 rigs will be earning an average day rate of $324,645, which is an increase of nearly $73,000 (30%) over current rates. The future definitely looks bright.
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