Offshore Rig Review: Hindsight is 20-08

By most standards, 2008 has been a very rough year for the US and world economies. But from the perspective of offshore drilling contractors, the year remained a good one. As oil prices soared to records highs and then fell back to earth, offshore rig contracts continued to be signed at a steady pace and value on par with the previous two years. Rig utilization has been high throughout the year, even as the rig fleet has grown. More offshore rigs have been contracted during 2008 than at any point since the 1980s. And those rigs have been earning on average the highest day rates ever paid for offshore rig work.

The data provided in the table below outlines some of the key statistics that marked 2008 was a positive year for the industry. The fleet of competitive jackups, semisubs and drillships grew by 29 rigs, a 5% increase in the total fleet size, despite the losses of three jackups in the GOM during Hurricane Ike (the ENSCO 74, the Pride Wyoming, and the Rowan Anchorage). At the same time, utilization remained strong, dipping only slightly among jackups.

Day rates moved up across the board, albeit at a much slower pace than the last several years, a point we will look at in more detail below.

Competitive Rig Fleet, Utilization, and Average Day Rates
January 1, 2009 vs. January 1, 2008
Rig Type Rigs Total Change Rigs Cont. Change Util. Change Avg. Dayrate Change
Drillship 39 rigs + 3 rigs 34 rigs +3 rigs 87% +1% $348,566 + $74,507 + 21%
Jackup 379 rigs +17 rigs 328 rigs +4 rigs 87% -3% $147,438 + $15,381 + 10%
Semisub 163 rigs +9 rigs 145 rigs +10 rigs 89% +1% $337,239 + $68,659 + 20%
Combined 581 rigs +29 rigs 507 rigs +17 rigs 87% -2% $222,312 + $40,604 + 18%

Even though 2008 was a record year, it was certainly not as much of a growth year as the previous several years. In order to gauge the day rate growth over the last several years, we examined the amount the average day rate changed from January of each of the last 6 years until December of that year as a percentage of the January day rate. This shows how quickly day rates are increasing or decreasing over the course of the year.

As can be seen in the graphs below, the growth in the average day rate for 2008 was significantly less for both the jackup and floating rig fleets. For jackups, this was the first year in four years in which the average day rate increased less than 20% from January to December. For floating rigs, the trend is very similar although the decrease in growth was smaller than for the jackup market.


Graph of Yearly Day Rate Changes

With day rate growth having essentially come to a standstill for jackup contracts signed in late 2008, it is likely that 2009 will be a year of at best no growth in average day rates. More likely is that jackup rates will decline during 2009, given the drop in oil prices, the increased fleet size, slightly lower utilization levels, and circumstantial evidence of decreasing demand in the form of cancelled tenders and rigs stacking.

For the floating rig market, the downward trend in average day rate growth is set to continue. As with the jackup fleet, with oil prices at less then half their year ago level, day rates for new semisub and drillship contracts being signed in 2009 are also likely to be at lower levels than in the last 2 years. The effect of lower day rates will be seen more slowly in the floating rig markets, especially amongst ultra deepwater rigs, since most of the rigs in the fleet are under long term contracts. So, average day rates may still increase slightly for floating rigs over the course of 2009, even as new contracts are signed for lower day rates.

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