In our last Offshore Rig Review, we examined the current state of the competitive jackup fleet and its prospects for 2008. This week, we will be taking a look at the competitive floating rig fleet, including both semisubs and drillships.
For the month of January 2008, the competitive semisub and drillship fleet consisted of a combined 192 rigs. Of those 192 rigs, 173 of them were under contract during the month for a 90% utilization rate. That 90% utilization rate is one of the highest utilization rates seen for this group of rigs at any point in the last several years, being only slightly surpassed by the 91% utilization seen in mid-2007.
In terms of day rates for the competitive floating rig fleet in January 2008, the overall worldwide average was $280,000 per day. That is 35% higher than the average day rate a year earlier, and nearly twice the average day rate from January 2006. Thus, as with the jackup fleet, 2008 is off to a great start.
What's in Store for 2008
In order to get a better understanding of the dynamics in this market, we also need to account for the fact that more newbuild semis and drillships will be delivered in 2008 than in any of the past 24 years. With 17 competitive newbuilds set to join the fleet before the end of the year, mostly in the second half, this one year marks a major growth spurt with a nearly 10% increase in the number of rigs available for work. Those new rigs joining the fleet account for a portion of the growth in contracts for this segment that we noted above. So, while more rigs will be contracted later this year than in January, utilization rates will actually be dipping slightly because of the larger pool of rigs.
However, in terms of the newbuild floating rigs, it is definitely worth noting that 14 out of 17 newbuilds set to be delivered this year already had contracts in place as of the end of January. Of those pending contracts, most of them are long-terms deals, with rigs contracted for 3 to 4 years, even longer in some cases. So, while the fleet will be growing, there will be relatively little excess rig time available.
Now, let's take a look at the rig demand situation from a slightly different angle, which we can compare across years. We will look at the number of rigs with contracts pending in January for work in December 2008. As we saw with the jackup fleet, this gives us a good measurement of the level of demand this year versus previous years.
As of late January, 173 semis and drillships had contracts in place for work in December 2008. We've already pointed out that the competitive floating rig fleet will be growing by 17 rigs during that time frame, creating a total fleet size of 209 rigs by the end of 2008. Thus, the 173 rigs with contracts pending for work in December amounts to an 83% contracted rate for late 2008. That compares to a 51% contracted rate for jackups during the same time period.
Moving on from utilization levels to day rates, the average day rate for floating rig time contracted in December 2008 is $338,000. That is a $58,000 increase over the January 2008 average day rate, which marks a 21% rise.
Thus, 2008 is set to be a remarkable year for the competitive floating rig fleet, with high levels of utilization, record day rates, and a large increase in the fleet size that has yet to make a dent in utilization and day rates. However, to get a fuller picture of the situation, we need to look back at previous years to see how things compare.
Comparing to Previous Years
Moving forward to January 2007, the competitive floating rig fleet was still seeing 86% utilization, but day rates had moved up 43% to $207,000. As of January 2007, there were 157 semis and drillships contracted for work in December 2007. Given the 191 rigs in the fleet, that amounts to an 82% contracted rate. On those pending contracts, the average day rate was $266,000 (29% higher than January's average) with an average length of 22 months.
Reviewing January 2008, the competitive semisub and drillship fleet was at 90% utilization with average day rates of $280,000. In January, there were 173 floating rigs with contracts pending for December of this year, which produces a 83% contracted rate once the newbuilds are factored in. For those pending contracts, the average day rate is $338,000 (a 21% increase over January's average) with an average length of 30 months.
It is quickly apparent from this quick analysis that the level of demand for floating rigs has continued to increase. With the number of rigs under contract nearly a year in advance moving up to its highest level and day rates continuing to climb year over year, the continued demand outlook for the competitive semisub and drillship fleet is very strong.
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