Weekly Offshore Rig Review: Semisub Shift

For a little over a year, the RigLogix team has been working with an expert in rig demand and a mathematician to create forecasts of offshore and onshore drilling rig demand. Over that time, our team has generated a score of reports that analyze the ongoing and future trends in rig demand and provide accurate predictions of rig utilization and day rates up to ten years into the future.

This week's offshore rig review draws from a recent issue of the worldwide deepwater semisubmersible report to provide a look at where demand is heading in the second quarter of 2008 along with analysis of some of the factors that are reshaping the market for deepwater semisubs.

Deepwater Semisubmersible Fleet
For the purposes of this analysis, deepwater semisubmersibles are those that are rated for 4,000 feet of water or greater. There are currently 55 such rigs that are part of the active offshore rig fleet. Of those rigs, 53 of them are contracted as of June 14, 2007.

In addition to the 55 deepwater semisubs that are already part of the fleet, another 36 of these rigs are currently under construction around the globe and preparing to join the fleet over the next three to four years. Only one deepwater semi is projected to leave the shipyard this year. After this year, 10 semis are expected to be delivered in 2008, with 17 more arriving in 2009, and the rest expected to be completed in 2010.

A fact worth noting about these newbuild deepwater semisubs is that while they are all capable of drilling in water depths of 4,000 ft or more, the overwhelming majority of the rigs will be rated for 7,500 feet or greater. In fact, of 36 rigs only 3 are rated for less than 7,500 feet. Given that there are only 17 active semisubs rated for 7,500 feet or more, these 33 new rigs will nearly triple the size of this segment of the fleet taking it up to 50 rigs.

In terms of contracts, of the 36 deepwater semis being built, 25 of them already have contracts lined up for when they are completed. That translates to a 69.4% contracted rate.

Deepwater Semisubmersible Demand
Over the course of the last seven years, demand for deepwater semisubmersibles has risen from about 27 rigs contracted in March 2000 to 51 rigs contracted in March 2007. That rising demand is expected to continue climbing as the size of the deepwater semisubmersible fleet grows over the next few years and those new rigs quickly go to work.

The graph below presents an overview of demand for the last seven years as well as a look forward at where demand is forecast to be headed. The blue line shows the actual number of rigs contracted. For dates in the past, the red line indicates the demand that was modeled using the RigOutlook mathematical model. For dates in the future, the black line indicates the high level of demand that might be seen should events such as oil shortages or supply interruptions drive higher demand than expected. The green line indicates the low level of demand that might be seen if unforeseen events such as a recession push demand down. The orange line indicates the level of demand that we expect to see over the next year.

Deepwater Semisub Rig Demand (2000 to 2008)
Semisub Demand Graph

The most notable aspect of the forecast demand is that regardless of the demand scenarion(high, low or expected), demand for deepwater semisubs is on the rise. As such, a year from now, between three and seven more deepwater semis will be contracted than are contracted at this time.

Fleet Changes Affecting Demand
The semisubmersible market is going through a transition by taking the next step into deeper waters. This means that new technology rigs are needed, and hence the industry is supplied with 0-3,999 ft, 4,000-5,999 ft, 6,000-7,499 ft, 7,500+ ft, progressively. The most recent group of rigs under construction is pushing the boundaries with the 12,000 ft mark as the target, up from 10,000 ft in the building boom of the late 1990’s.

The problem is that as oil companies go for these higher spec rigs, the low spec rigs are likely to find less and less demand (outside the North Sea) although they have some healthy life left in them. In other words, there will be cannibalization. The speed with which this cannibalization takes place is determined by the speed with which the new high spec rigs come into the market, and the versatility of the low spec rigs to temporarily substitute for the high-spec rigs.

Our long term forecast for all semisubmersibles and the 4,000+ ft semisubmersibles reflects this cannibalization. When demand is good, this cannibalization will not be taken seriously by drillers, but when things take a downturn, it will be severely felt. For example, towards the end of 2008 when we predict a low demand for the semisubmersibles overall, we predict that 4,000+ft semisubmersibles will maintain a high utilization. This implies that the other rigs, notably, 0-3,999 ft semis will suffer, at least outside the North Sea.

Want More Details? More Rig Types? More Forecasts?
For more information and detailed long-term predictions of utilization over the next 10 years for each type of rig, contact us today about the RigOutlook Worldwide Long Term Rig Demand report. This 35 page report provides an overview of expected rig utilization for jackups, semisubmersibles, drillships, and land rigs that details the future utilization cycles for each type of rig through 2017. This predictive model has proven to be highly accurate over the last six months, with its predictions falling within less than 0.5% margin of error for predictions created in March for the rest of this year. So, if you want to know when rig utilization will peak and fall, you can trust RigOutlook for an accurate prediction. You can learn more at the RigLogix web site. Or contact Tony Beebe via email at tbeebe@rigzone.com or call our offices at +1-281-345-4040 for details on the RigOutlook reports and how you can subscribe.