Rig Trends: Floating Rig Market Facing High 2015 Contract Rollovers

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There is little doubt that the worldwide floating rig (drillship and semisubmersibles) fleet is in for a very bumpy remainder of 2015. The fall in oil prices has resulted in operators slashing 2015 spending plans, which has led to drilling cancellations or postponements. Operators are now asking rig owners to lower day rates for those rigs remaining under contract, in some cases by 50 percent or more. Rig owners have begun retiring some older and/or long-idled rigs, a move that if truth be told should have probably started a few years ago. While attrition will continue for the rest of the year, the gap between supply and demand will continue to widen this year.

According to RigLogix, as of March 12, there were 294 active competitive floating rigs worldwide, excluding one rig that will be retired shortly. The competitive fleet does not contain state oil company owned units or those rigs with geographic locations that preclude them from competing globally. As of March 12, there were 22 non-competitive rigs. Of the 294 competitive rigs, 15 were cold-stacked along with one that will be cold stacked in March. This leaves a marketed competitive floater supply of 279. Utilization was 89.2 percent, as of March 12 with 249 of the 279 rigs under contract or committed for work. On the surface, utilization does not seem as low as would be expected, but whenever market dynamics change, like what has happened recently, there is always a lag time between the change and a rise or fall in rig utilization, and the lag period is where the rig market finds itself currently.

As of March 12, there were 30 available, competitive floating rigs worldwide. However, RigLogix shows there are an additional 75 units scheduled to roll off contracts by the end of the year if options are not exercised or further work not secured. Obviously, all 75 units will not go idle, but it does clearly illustrate the problem facing rig owners.

As would be expected, the historically busiest areas have the highest number of contracts ending this year. There are two ready stacked floaters in the North Sea, but an additional 15 rigs with contracts ending in 2015. Off Africa, there are 12 rig contracts potentially ending in 2015 in addition to seven ready stacked units. Southeast Asia has eight floaters scheduled to come off contract this year and 11 available units in the area. The U.S. Gulf of Mexico has six stacked floaters and eight with contracts potentially ending this year. In Brazil, there are seven rigs with contracts that end in 2015, but just one ready stacked unit. Figure 1 shows the 75 floating rigs scheduled to come off contract for the remainder of 2015 by region.

Rig Trends: Floating Rig Market Facing High 2015 Contract Rollovers
2015 Floater Availability by Region.

Looking at the numbers by contractor, Transocean Offshore is most at risk with 21 rigs rolling off contract in 2015, only five having options that could be exercised. The company also has 11 ready stacked units. Diamond Offshore comes in next with 11 rigs with ending contracts in 2015 and only three with options for additional term (one other rig has already been notified it will not have options exercised). However, the company has just three currently available units. ENSCO rounds out the top three with five rigs that have contracts ending this year and two that could be extended. The rig owner also has one currently available rig. Figure 2 displays the 75 rigs scheduled to roll off contract in 2015 by rig manager.

Rig Trends: Floating Rig Market Facing High 2015 Contract Rollovers
2015 Floater Availability by Rig Manager.

It is understood that some rigs have options that are not “public” but have a high probability of being extended. Obviously, there are existing floating rig requirements in the market now and there will be others that materialize during the year and some of these rigs will receive some of the work. However, one fact to keep in mind is that as of March 12, there were 11 newbuild floating rigs scheduled to be delivered this year that do not have contracts. Some of these have already had their delivery date moved to the right, and seven of the 11 will not be delivered until the final three months of the year, so pushing deliveries into 2016 is well within the realm of possibility. Should that happen, the impact on supply will clearly be lessened, but the oversupply will still be far from solved. If they are delivered as planned, they will most certainly move to the top of the list in regards to being put to work first as rig owners will do everything they can to keep the rigs from sitting idle. Finally, early contract terminations could impact the numbers. There have already been several and there will be more, some of these could push a rig that was contracted into 2016 or beyond into this year.

Having summarized the data, the two primary questions are how many of the 82 rigs are already off or are scheduled to come off contract this year will secure additional work, and how many of those that have options will be exercised? The outlook for the price of oil is mixed, but even if it rebounds to the $70 to $75 range projected by some, it would not spur the level of activity needed for a return of 90 percent plus utilization. Also, that level of prices would not result in a substantial increase in operator spending, so it would seem that deepwater rigs would be at or near the top of the list of things to be cut now. There are rig tenders currently in the market, the majority of which are for West Africa, Asia-Pacific and Brazil, but from what is known there is nowhere near enough demand to absorb available supply. Rig owners cannot create rig demand; all they can do is cut day rates and get older equipment out of available supply, both of which are now in full swing. While rate cuts will keep some rigs from being released, it will not save them all. All things considered, of the 105 rigs either now available or that could be released in 2015, our worst-case scenario calls for 50-to-60 percent of these rigs (52-63 rigs) remaining or going idle when their contracts end. On the other end of the scale, our best-case is that only 30-to-35 percent of the rigs (31-37 rigs) remain idle or are stacked upon contract completion.

This is an abbreviated version of Rigzone’s Rig Outlook product that will be re-introduced at the 2015 Offshore Technology Conference in Houston in May. Rig Outlook will be a model-based, multi-year global offshore rig supply, demand, utilization and day rate forecast and will be published at the middle and end of each year. The model is currently being developed and we anticipate having our initial full-blown report finished later this year. In the other 10 months of the year, we will publish a shorter-term, detailed outlook for a specific region or rig type that is relevant at the time. Those reports will begin once the first longer-term report is finished. Rig Outlook will be available at an additional fee as an add-on to existing RigLogix subscribers or through stand-alone subscription.

 

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