Weekly Offshore Rig Review: Riding the Wave of the Future
Worldwide offshore rig utilization continues to hold near 83%, as it has for the last several weeks. The only idle rig starting a new contract was the 8,000ft semisub ENSCO 7500, which just started working for Chevron in the US GOM.
Current utilization is an interesting fact, but most people are more interested in where utilization and day rates are headed. What's the future hold for the offshore rig fleet? How are utilization and day rates going to hold up in the coming year? These are the two of the key questions facing companies involved in the offshore oil and gas industry. This week, we'll take a look at some of the key indicators of future utilization and day rates: rig contract backlogs and the time between contract signing (fixture date) and the actual start of the contract, which we will refer to as the fixture-to-start differential for expediency's sake.
Looking at the worldwide jackup fleet, there are a total of 392 rigs available for work around the world. The largest and probably most important subsegment in this group is the fleet of 250'+ ILC jackups, which comprise a total of 239 rigs (about 60% of the jackup fleet) and earn the highest day rates. Among these rigs, 216 of 239 are currently under contract, and the average length of the contract back log for these rigs is about 17 months. That means that 90% of the 250'+ ILCs already have contracts and options to keep them working until mid 2007.
Part of the trend that has produced this large backlog for so many jackups is the fact that the length of time between the contract fixture date and start date has increased substantially. For contracts signed during 2004, the fixture-to-start differential for 250'+ ILCs was about 75 days, or about 2.5 months. While in 2005, contracts signed for these same rigs were being signed about 180 days, or 6 months, in advance of the start date. Along with the increase in the fixture-to-start differential comes a significant increase in day rates, with contracts for 250'+ ILCs signed in 2005 having day rates 60% higher than those signed in 2004.
Semisubs and Drillships
The trend for floaters has been very similar to the trend for jackups, but it is even more pronounced. For 4,000'+ drillships, the average fixture-to-start differential increased 126% from 171 days, about 6 months, in 2004 to 386 days, nearly 13 months, for contracts signed in 2005. Similarly, among 1,500 to 4,000' semisubs, the fixture-to-start differential has increased from 129 days, about 4 months, for 2004 contracts to 261 days, almost 9 months, for 2005 contracts, which is a 102% increase. And most notably, the fixture-to-start differential for 4,000'+ semisubs increased from 128 days, about 4 months, to 308 days, about 10 months, year-to-year, which is a 141% increase. As with jackups, the increase in fixture-to-start differential has been accompanied by increases in average day rates ranging from 76% for 4,000'+ drillships to 112% for 1,500' to 4,000' semis.
Taking a closer look at the contracts signed in 2005 for 4,000'+ semisubs, we see that most contracts were signed 3 to 12 months in advance, with the fixture-to-start differential affecting day rates noticably, up to a point. Specifically, contract with a 6 to 12 month fixture-to-start differential averaged just under $200,000 per day. While contracts signed 12 to 18 months in advance averaged $282,000 per day, about 40%. And contract with a fixture-to-start differential of 18 months to 2 years averaged day rates of $350,000, a further 24% increase. But, contracts signed 2 to 3 years in advance averaged only $185,000 per day.
This has lead to the current market situation where 25 of 26 (96%) of 4,000+ drillships are contracted into the future for an average of 3 years. 74 of 84 (88%) of 1,500' to 4,000' semis are contracted for an average of 2 years. And 53 of 54 (98%) of 4,000' semis are contracted out for the next 2.5 years.
While individual rigs will be available in the short term, on average, more and more rigs are being locked into longer contracts sooner. For operators, this means more competition for an ever-tightening rig fleet, until new rigs which are currently under construction begin to be available. This will likely lead to even larger fixture-to-start differentials for new contracts, until oil prices fall and demand begins to subside.
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