Weekly Offshore Rig Review: All Around the World

This week, worldwide offshore rig utilization moved up slightly to 83.8% as four idle rigs started new contracts and 2 contracted rigs came of contracts for several weeks of modifications and inspections before going back to work in November.

In our ongoing examination of trends and events that affect the offshore rig fleet, this week's Offshore Rig Review will be taking a more detailed look at the utilization trends for the semisub and jackup fleets on a regional basis.

Worldwide, the jackup fleet has experienced a fairly consistent, and slowly increasing, level of utilization over the last two years. That comes on the heels of three years of consistent growth. Five years ago, in October 2001, jackup utilization was at 73% worldwide. Over the subsequent three years, utilization burgeoned up to 85% in October 2004, and since that time has stayed very close to that level. As of October 2006, there are 336 of 392 jackups under contract for a utilization rate of 86%.

Jackup Utilization Changes by Region
  Oct 2006 Apr 2006 Oct 2005 Change vs Oct 2005
Region Utilization Utilization Utilization Total Rigs Cont. Rigs Util.
US GOM 60/99 (61%) 73/105 (70%) 81/112 (72%) -13 -21 -11%
Persian Gulf 65/73 (89%) 63/69 (91%) 59/67 (88%) +6 +6 +1%
North Sea 32/32 (100%) 31/32 (97%) 31/31 (100%) +1 +1 0%
SE Asia 29/31 (94%) 30/32 (94%) 28/31 (90%) 0 +1 +4%
Mexico GOM 29/30 (97%) 25/27 (93%) 28/28 (100%) +2 +1 -3%
South Asia 28/28 (100%) 27/27 (100%) 27/27 (100%) +1 +1 0%
W Africa 26/26 (100%) 22/23 (96%) 19/19 (100%) +7 +7 0%

As can be seen in the table above, with a few exceptions, there have not been major fluctuations in regional jackup fleet sizes or utilization over the last year. However, the exceptions are very important ones: the US Gulf of Mexico, which is in decline, and the Persian Gulf and West Africa, which are both growing strongly. These exceptions are discussed in more detail below.

US Gulf of Mexico
Utilization in this region is the weakest of any area where jackups are employed, standing at just over 60%. This is the lowest level of GOM jackup utilization since late 2001 when the industry was just beginning to return from the 2000-01 slump. GOM jackup utilization peaked in the summer of 2005, and it has been declining steadily for most of the last 14 months, with only a minor up tick during the summer of 2006 to offset the trend. As such, rigs have continued to leave the US Gulf and head for richer day rates and longer contracts overseas. While the US GOM is still home to the largest fleet of jackup rigs in the world, the number of jackups in the GOM has fallen sharply over the last 5 years, dropping 53 rigs (34%) during that time and 13 rigs (12%) in just the last year.

Persian Gulf
While the rig fleet in the US Gulf has been declining, the fleet in the Persian Gulf has been growing steadily since the start of 2005. Prior to 2005, the Persian Gulf jackup fleet held very steady in size and utilization, with the fleet of 56 to 60 rigs experiencing 85% to 92% utilization. During that same period, jackup day rates in the Persian Gulf had held very steady as well, varying little from $44k to $47k per day. In 2005, demand for rigs in the Persian Gulf began a steady increase that is still continuing. While there are currently 73 jackups in the Persian Gulf, 8 more are expected to arrive by December 2006, bringing the total up to 81 rigs. That is a 17 rig (27%) increase over two years. Even with such strong growth, which has been driven largely by the much higher day rates now being offered in the region, utilization has remained steadily near 90% throughout the last two years.

West Africa
In West Africa, jackup utilization has been consistently strong since the start of 2005, when utilization pushed upwards of 90% for the first time in two years. However, this rise in utilization resulted more from a minor exodus of rigs from the region than from an increase in demand for jackups. Over the course of 2004, a net total of 5 jackups left West Africa, decreasing the fleet size from 24 to 19, a 21% drop. Through 2005, jackup demand and supply were basically even, but as 2006 has progressed, demand has pulled more rigs back into the region, keeping utilization high but also driving the number of jackups up from 20 to 26 rigs. As such, for much of the last two years, West African jackups have seen utilization at or very near 100%.

As of mid-October 2006, the worldwide semisub fleet was experiencing utilization levels of 86%, with 142 of 165 rigs contracted. This is a slight increase over year-ago utilization levels from October 2005 when semisub utilization was at 83% with 137 of 165 rigs contracted. This is a continuation of the trend in semisub utilization that has been ongoing since 2003, when utilization stood at just 66% in October 2003.

Semisub Utilization Changes by Region
Oct 2006 Apr 2006 Oct 2005 Change vs Oct 2005
Region Utilization Utilization Utilization Total Rigs Cont. Rigs Util.
North Sea 39/41 (95%) 38/43 (88%) 37/42 (88%) -1 +2 +7%
US GOM 25/32 (78%) 29/35 (83%) 24/34 (71%) -2 +1 +7%
Brazil 21/21 (100%) 20/20 (100%) 19/19 (100%) +2 +2 0%
W Africa 19/20 (95%) 15/16 (94%) 15/17 (88%) +3 +4 +7%
SE Asia 7/13 (54%) 9/12 (75%) 7/9 (78%) +4 0 -24%

US Gulf of Mexico
As with the GOM jackup fleet, the GOM semisub fleet has also decreased in size over the past year. This is a continuation of the overall trend for the US Gulf, which held 40 semisubs 4 years ago, but has seen its semisub fleet size fall by 20% over that 4-year period. At the same time, the loss of semisubs from the GOM is generally a benefit because it has worked to increase utilization rates in the region, while idle rigs have been able to move to other areas with higher demand, such as Brazil and West Africa.

In Brazil, the semisub fleet has remained very consistently at the same size and at very high levels of utilization for the last five years. The total number of semisubs in the region has held between 19 and 22 rigs during that time, and the number of rigs contracted has only fallen as low as 17 rigs, with utilization rates never dropping below 85%. Over the last year, the number of semisubs working offshore Brazil has increased by two rigs. This increase is part of an upward fluctuation in the Brazilian deepwater rig fleet, but it really just a small variation in the general stability of this market.

West Africa
Unlike Brazil, which has had a very steady level of utilization over the last five years, the West African semisub fleet has experienced a great deal of variation with utilization near 60% 4 years ago and well over 90% at times this year. Since the second quarter of 2005, semisub utilization has not fallen below 85% and has generally held above 90%. This strong demand has helped to bring more rigs to West Africa. With 20 semisubs currently in the region, and that number set to increase to 21 rigs in November, the West African semisub fleet has reached its largest size ever.

Southeast Asia
Over the last year, the number of semisubs in SE Asia has increased by four rigs. Contrary to typical trends, this increase is not driven by increased rig demand in the region. Rather, several rigs have entered the region to visit the shipyards of Singapore for modifications. In fact, of the 6 semisubs in the region that are not under construction or under contract, all 6 are either undergoing modifications or inspections. As such, actual rig demand in the region has not changed much over the last year.

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