Analysis: Global Jackup Report Card
Industry consensus among offshore drillers points to stability in the jackup market over the remainder of 2010. Eight months into the year, global jackup utilization of 80% is exactly where we started the year. Utilization has been helped by the strong demand for high-spec jackups as lesser capable rigs have faced their share of headwinds.
While dayrates having fallen 13% to an average of $115k/day for jackups globally year-to-date, leading edge prices are not moving much from current averages. So, although global dayrates have been trending down since March of 2009, a floor for stable pricing going forward is now forming. In spite of this, we would not anticipate near-term price improvement. In addition to the 365 jackups currently marketed worldwide, there are another 69 units in ready-stacked condition and 11 newbuilds (that will be delivered before year end) that will factor into the competitive landscape should demand for jackups begin to grow.
The top three drilling contractors by number of rigs available varies from region to region. In aggregate the twelve contractors that filled the top-three spots on a regional basis held nearly 60% of the market. The remaining 40% of the jackup market is dispersed among 61 contractors. Looking at demand we found the industry's appetite for jackup rigs was more dispersed. The top-three operators by region controlled an aggregate 49% of the jackups currently active.
Utilization was 86% for the 21 jackup rigs situated primarily off the West African coastline during the month of August. This was stronger than its annual average of 70% in 2009 but below its second quarter 2010 level of 91%. Political instability, particularly within Nigeria, has been a key disruptive factor that has discouraged operators from optimizing their development of this region. Should the region's political environment hold the course over the remainder of the year, then we would anticipate that utilization will continue to range around 85% to 90% levels.
Dayrates along the African coastline peaked in June of 2009 at a rate of nearly $198k/day. Since then rates in the region have declined 42%. Of late, pricing appears to be stabilizing and the average August dayrate was $115k/day. Of the 18 rigs that are currently contracted, six units are premium jackups (which we define as independent cantilever (IC) rigs capable of drilling in water depths greater than 300 feet). Premium jackups command higher dayrates in general. Recent fixtures for the region have ranged between $85k/day to $115k/day with premium rigs setting the higher end.
Industry commentary points to subsiding demand for rigs in the Middle East. This follows a gradual recovery of utilization that began after utilization bottomed out in August 2009 at 75%. During 2010 utilization has hovered around 79% for the 127 jackup rigs marketed in the Persian Gulf, Black Sea, Mediterranean, and the Red Sea. This was true for the month of August as well.
Leading edge pricing for standard rigs is said to be between $60k to $70k/day. This compares to the current average of $115k for all rigs operating in the region. Depending on the location, premium rigs are commanding rates between $112k to $189k/day with the highest fixtures set in the Persian Gulf. Average dayrates in the Middle East/Eastern Europe peaked in May of 2009 at $130k/day when there were a dozen fewer rigs marketed to the region. Current competitive pressures are heightened in the near-term considering 34 rigs roll-off contract between now and year end. The headwinds are greatest for standard 300' rigs and those that operate in shallower water depths.
The North Sea is a closed market due to the harsh environment and regulatory barriers to entry, especially in the waters controlled by Norway. Overall these conditions are favorable to utilization trends, which are currently highest among all regions in this report. Utilization is currently 94% for the 35 rigs marketed in the region.
Typically dayrates in the North Sea can be classified as those applying to waters controlled by Norway and those comprised of the UK and elsewhere. In tandem with the harsher environments and stricter rules governing activities in the North, dayrates for rigs operating in Norway are considerably higher on average than other parts of the North Sea. The overall August average dayrate was $152k/day in the North Sea with the Norwegian segment garnering an average of $322k/day and the remainder averaging $130k/day.
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