Today's Trends: Declining Rig Demand in GOM is Nothing New

Rig movements to and from the Gulf of Mexico region are nothing new. While recent discussions regarding Rowan's plan to relocate two of its jackups (the Ralph Coffman and the Bob Palmer) elsewhere is a bit disconcerting given the current frailty of the region, it does however follow a long-term trend. Higher demand, longer contractual terms, and better pricing in other markets are all believed to be driving this trend. At 85 marketed rigs, the available count has been cut in half from where it stood at the beginning of the decade.

The majority of the rigs that have left the region were jackups. From 2001 to 2010, 77 of the 88 incremental rigs that have relocated to other regions were jackups. Prior to the moratorium, the year 2009 was a push with the number leaving and entering both equaling 18 rigs. However, we would note that a disproportionate amount of the 18 departures were jackups (13 rigs).

The Gulf of Mexico jackup environment is more characterized as a spot market than a region where drillers will bid for longer duration contracts. We see little likelihood for catalysts developing that would motivate operators to seek longer terms, especially when viewed in light of the ready available onshore domestic gas exploration opportunities. Conversely, recent fixtures that include multi-year contracts (like the three-year deals Rowan's Coffman and Palmer are seeking to lock-in) provide some motivation for drillers to focus more intently on international opportunities. Thus, the slow permitting process that has developed in recent months in the shallow waters of the Gulf of Mexico could lead to further deterioration of a region that was not that appealing for jackup drillers even before the oil spill.


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H.Buschor | Jul. 9, 2010
With the foul wind blowing out of Washington DC the exodus will accelerate. We will import oil and further deteriorate our trade balance and weaken the dollar and demolish good domestic jobs.

| Jul. 9, 2010
I strongly disagree, there was NO talk of these rigs leaving till the BP disaster and the whole deal about reorganization of the MMS and the delays encountered getting NEW permits.....this is hog wash!

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