Weekly Offshore Rig Review: Floating Rigs Locked In, Too

Last week, we started a year-end analysis of the future prospects and rig contracting trends by looking at the jackup fleet's contract coverage for the next three years. This week, we will continue by examining the current level of future contracted time for the competitive drillship and semisubmersible fleet and then comparing those numbers across the leading offshore drilling contractors' fleets, as we did previously for jackups.

Past the Peak
As a guide to current and future levels of rig demand, we'll be looking at the percentage of the floating rig fleet that already had contracts and options in place for the following year by early December of the previous year. In the current instance, as of today, December 14, 2006, 76% of the available drillship and semisub rig time during 2007 is already contracted. Thus, of all the competitive floating rigs that are currently in the market, more than three quarters of the days that those rigs will be available to work are already contracted.

In last week's Offshore Rig Review, where we examined these same statistics for the jackup fleet, we saw that 69% of the jackup fleet's time for 2007 is already contracted. So, by comparison, the drillship and semisub fleet has only a slightly higher level of contracted time (76% vs. 69%) for 2007. This is not too surprising, since many operators have been increasingly anxious to lock in jackup time over the last two years. Also not surprisingly, the floating rig fleet, which tends to have much longer contract lengths, has a significantly larger portion of its timm contracted in 2008 and 2009, where 57% and 41% of the available time is already contracted. This compares to 40% in 2008 and 22% in 2009 for the jackup fleet.

While the fact that such a large percentage of the available floating rig time for 2007 is already contracted is interesting by itself, the data is more interesting and informative when seen in the context of the last several years. By looking at the level of rig time that was contracted at the same time over the last three years, some interesting facts and trends appear. The table below provides a comparison of the percentage of next year's rig time contracted at the start of December each of the last three years.

Year End Floating Rig Demand Comparison

Date % of Rig Time Cont. For Next Year Avg. Day Rate For Next Year
Dec 14, '06 (for '07) 76% $240,346
Dec 14, '05 (for '06) 94% $161,941
Dec 14, '04 (for '05) 50% $114,144

When we look back at the percentage of jackup time for 2006 that was contracted as of one year ago, we see that as of December 14, 2005 94% of the available floating rig time for 2006 was contracted. That is 18 percentage points above the current level of contracts in place for next year.

Looking back another year to December 14, 2004, only 50% of the available floating rig time for 2005 was contracted as of that date. That is 44 percentage points less than in 2005, and it is 26 percentage point fewer than today.

As can be clearly seen in this analysis, the level of future contracted time for the following year peaked last year. Deepwater rig demand was increasing steadily throughout 2004, with utilization and day rates both on the rise. This trend was kicked into high gear during 2005 when higher oil prices helped to fuel demand for floating rigs as operators around the globe realized the need to lock in rig time in order to begin to take advantage of those higher commodity prices. This trend was reinforced by and helped to reinforce the rising semisub and drillship day rates, which reached new highs in 2005, spurring the need to secure rig time for 2006 and driving an extremely high level of contracted time for 2006. Now that oil prices have leveled off a bit and the rig market has slowed from its frenetic pace, demand for floating rigs is still very robust albeit slower than the 2005 pace.

The Companies Benefitting
As we noted last week, longer contracts, decreasing rig availability, and rising day rates all point to a driller's market. The trend towards greater earnings among the offshore drilling contractors is especially strong for those with large floating rig fleets since these rigs have seen average day rates more than double in the last two years.

The table below compares the level of future contracts among the drilling contractors that currently have at least 10 competitive drillships and/or semisubmersible rigs. For each company, their current floating rig fleet size is given, along with the levels of rig time contracted and the average day rates for those contracts for the next three years. These figures are based on the published contract information that is currently available in RigLogix and are not predictions.

Future Contracted Time by Manager

Current 2007 2008 2009
Manager Floaters % Time Cont. Avg. Day Rate % Time Cont. Avg. Day Rate % Time Cont. Avg. Day Rate
Transocean 50 rigs 83% $252,442 72% $320,732 49% $345,721
Diamond 29 rigs 85% $221,609 55% $296,375 37% $287,524
GlobalSantaFe 14 rigs 89% $274,094 65% $316,472 46% $371,179
Pride 14 rigs 89% $185,404 77% $235,033 66% $240,610
Noble 12 rigs 100% $224,615 83% $277,641 44% $276,100
All Others 58 rigs 54% $252,884 37% $360,231 33% $394,830
World 177 rigs 76% $240,346 57% $314,799 41% $342,212

Transocean is by far the leading manager of floating rigs, with the most drillships and semisubs of any offshore driller. With its fleet of 50 rigs, the company's fleet is larger than the next two largest company fleets combined. So, even though the company has the smallest percentage of its 2007 rig time contracted, it still has by far more rigs working than any of its competitors. In fact, with 49% of its floating rig time contracted for 2009, Transocean has about as many rig days contracted for that year as Diamond (with the 2nd largest floating rig fleet) has contracted for next year.

GlobalSantaFe will be earning the highest average day rates for its floating rigs. At the same time, Noble will be earning less per rig day, but the company has 100% of its available floating rig time already contracted for 2007.

In last week's jackup review, we noted that Pride has the lowest average jackup day rates and the lowest level of contracted time for 2007-09 among the six largest jackup contractors. Similarly, for Pride's floating rig fleet, the company has the lowest average floating rig day rates for 2007-09 of the five largest contractors listed above. In fact, Pride's day rates are about 25% below the average among all floating rig contracts over the next three years. However, Pride has already contracted more of its available rig time over the next three years than any other driller, with 66% of its floating rig time contracted for 2009.

Another item worth noting is that these five largest contractors will only be adding a handful of rigs to the floating fleet between now and the end of 2009. At the same time, 35 new floating rigs will be joining the worldwide fleet by the end of 2009 in order to take advantage of the strong demand and high day rates.

It is abundantly clear that current demand for future floating rig time is very strong, much stronger than for he jackup fleet. Even though the percentage of future time contracted peaked last year and new contracts have been scarcer than in 2005, with the majority of rig time contracted during the next two years, offshore contrators will continue to see strong demand and high day rates.

For More Information on the Offshore Rig Fleet:
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