Eight months into the year, global jackup utilization at 80% or about where we started the year. However, the supply-side of the equation has grown with 13 jackups delivered and 11 additions are still expected before year end. In aggregate there are 365 jackups currently marketed around the world, of which 291 are working. Besides marketed jackups, the number of stacked rigs where reinstatement remains an option is 136 units (approximately half of these are cold-stacked and may require extensive repairs or refurbishment before re-entry into the marketed fleet is possible).
Dayrates on a global basis have been trending down since March of 2009. While utilization has averaged nearly 81% from then until now, suggesting that rigs rolling off contract have been able to find work, the negative slope on prices reveals that the new contracts are at significantly reduced rates versus the old contracts. Year-to-date, dayrates have fallen 13 percent to an average of $115k/day. Unless commodity prices fall precipitously from current levels (i.e. +$70 crude, ~$4 natural gas), dayrates for jackup rigs appear to have stabilized at current levels.
Gulf of Mexico
Utilization was 73% for the 78 jackup rigs marketed in the Gulf of Mexico during the month of August. Down only slightly from its annual average of 74% in 2009. Utilization had dropped to as low as 66% during August of 2009 but since that time had been in a strong recovery mode up until the oil spill. The recent steep drop is quite illustrative of how the uncertainties manifested in the drilling ban on deepwater, permit delays, and promulgated new rules have collectively weakened demand for jackups in the region.
Pricing appears to be holding steady in the region. Dayrates peaked two years ago in March of 2009 at a rate of $132k/day. While current pricing has stabilized at around $80k/day, the average is very misleading due to the bifurcation of rig types operating in the region at both the high end and the low end with few standard jackups (23% of all rigs in region) contracted. Recent fixtures for premium rigs are between $110k/day to $140k/day and Rowan Companies is the owner of a majority with plans to deliver additional units this year and next. At the other end of the spectrum Hercules and Seahawk are providing mat rigs suited for shallow water drilling with recent fixtures ranging from $30k to $40k/day. Standard jackups in the region are competitive at rates between $50k to $60k/day.
Permitting Remains an Issue in the Gulf of Mexico
We surveyed the drilling contractors in the Gulf of Mexico that are actively marketing jackups, and all are feeling the repercussions of the new rules governing offshore drilling. Of the 53 jackups being marketed for work in the Gulf of Mexico, there are nine jackups that collectively hold 12 tentative contracts awaiting BOEM permit approval.
The new NTL-06 regulations have been reported as one of the major sticking points causing permit delays. NTL-06 deals with the rules that cover environmental concerns and response times should a blowout occur. Peak hurricane season has also been cited as another reason for near-term reluctance by operators to sign up jackups.
The majority of the jackups with longer term contracts have permitted work through late September/early October. However, if the next permit in the operator's program has not been secured, then the rig will have some idle time until a permit can be obtained.
From a sheer numbers standpoint, the government is approving fewer permits and taking longer to do so. Prior to the oil spill, the MMS (now the BOEM) was approving on average 37 permits monthly with an average approval time of roughly six days. Over the last four months permitting approvals by the BOEM have dropped on average to just 12 per month while the average approval time has increase to nearly 18 days.
Based on recent patterns it appears that operators are slowing their pace of applications for new approvals. Specifically, the average number of APDs submitted was nearly 36 per month prior to the oil spill and the government's subsequent response. Now operators are requesting permits at a rate of eleven per month on average. The month of August will likely end up with fewer requests than the recent average considering that just four permits have been submitted so far. Furthermore, prior to the changes approximately 71% of all requests were approved within the month requested. Since then the number of approvals granted within the same month requested is less than half of all permits filed.
Besides backing off in an attempt to give the agency a little breathing room to implement new rules and the timing necessary to interpret and implement the new rules; the slowing by operators represents a shift in focus. Industry commentary suggests that operators are less focused on building an inventory of drilling projects and instead are pouring more resources into ensuring that the jobs nearest to commencement are approved to proceed as scheduled. In a planning environment that more resembles a "just-in-time" system, drillers may find it more difficult to pin-point demand and the number of rigs bidding on the spot market for short-term work will likely increase.
Utilization was 82% for the 94 jackup rigs marketed in the Asia Pacific region during the month of August. This was a little weaker than its annual average of 85% in 2009 but consistent with its second quarter 2010 level of approximately 81%.
Dayrates are dependent upon the specific location be they Southeast Asia, the Far East, the Indian Ocean, or waters surrounding Australia and New Zealand. Pricing appears to be flattening out overall but we are starting to hear of increases at certain locations, especially high spec rigs. Southeast Asia comes first to mind where rates have started to strengthen for premium rigs as evidenced by the recent fixture of 128k/day recorded in Indonesia. Overall dayrates peaked two years ago in August of 2008 at a rate of $169k/day. Current pricing is holding around $124k/day. Of the 75 rigs that are currently contracted, recent fixtures for the region are between $105k/day to $129k/day.
For our purposes the Latin American jackup market excludes rigs working in the international waters of the Gulf of Mexico (i.e. Mexico). As such, the appetite for rigs in this region is based primarily on Brazil/Petrobras who is both the largest owner and operator of jackups in the region. Of the ten rigs marketed in the region, six are active for a current utilization rate of 60% and the average day rate is $124k/day.
Just three rigs were used to calculate the most recent monthly average as the majority of rigs in the region are owner operated by the NOCs of the region (Petrobras and PDVSA). Most of the owner-operated rigs are characterized as lower capability jackups. All three of the competitive rigs currently working in the region are premium jackups. Recent fixtures in the area have ranged from $115k/day to $155k/day with $135k/day being a good benchmark going forward. Thus, dayrates in the region will rise over the next six to twelve months as contract roll.
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