NEW YORK – Evercore ISI’s Oilfield Services, Equipment, and Drilling group has released a research update on recent rig activity and retirements.
The analyst group said that rig attrition had re-accelerated over the past month, and that the pace had continued in recent weeks. An additional floater and two jackups had retired, bringing the year-to-date total to 13 floaters and 13 jackups.
Ensco leads with six floaters and nine jackups retired year-to-date, accounting for 46% and 69%, respectively, of the industry total. On the floater side, Transocean, Diamond, Atwood, and Saipem round out the 2016 retirements, while Shelf Drilling and Noble retired a modest three and one jackup, respectively.
“Assuming the global jackup and floater count continues to track our bull/base and base case scenario, respectively, we estimate about 60 jackups and 50 floaters need to be retired per year over the next few years for markets to come into balance with low 80s utilization by 2018,” Evercore ISI said in the update.
“Due to accelerating rig retirements, as well as newbuilds deferrals and the cancellation of construction contracts, global floater supply is on track to decline for a second consecutive year from the 2014 peak.
“Despite the encouraging trend on the supply side however, demand remains weak as utilization continues to trend towards the annual historical trough of 63% established in 1987. On a monthly basis, utilization levels reached a historical trough of 53.7% in February 1987, but utilization improved 15.8% points to 69.5% by December 1987 on a combination of new contracts (27 rigs back to work), rig attrition (nine retired), and cold stacking (almost four units),” it continued.
With only two contracted newbuilds scheduled to be delivered later this year, Diamond Offshore’s Ocean GreatWhite and Transocean’s Deepwater Conqueror, and 40 floaters scheduled to roll off contract, Evercore forecasts the global floater count to continue trending lower over the next several months.
Evercore noted that the floater rig count had tracked closely to its base case scenario since the February introduction of its EVRISI Global Floater Rig Count Forecast in February. At 171.9 units currently, the global floater count is within 1.9 rigs, or 1.1%, of the group’s 170 unit base case scenario.
Furthermore, it said that its base case scenario forecasted the global floater count to end the year down 8.7% (or down another 15 rigs) from the current level, with significant risks to its estimate if several of the rollovers are not extended.
On the jackup side, rig attrition only recently commenced in earnest following a couple of particularly strong years for newbuild deliveries. Jackup supply peaked at 539 units last year, but is on track to moderate with retirements offsetting newbuilds.
However, Evercore said that more than 50 newbuilds are scheduled to be delivered later this year, more than 80% of which are not contracted. The group also revealed that it expects contractors to accelerate the deferrals of newbuild deliveries, particularly as 25% of ~50 newbuilds delivered since 2014 are currently not contracted.
Jackup utilization is averaging 64% thus far this year, below the prior annual trough of 65% established in 1986. On a monthly basis, jackup utilization bottomed at 57.9% in February 1987, nine months after hovering close to the 60% range. Utilization improved almost 17% points by December 1987, due to strong demand with 66.9 jackups returning to work, while only 9.8 units were retired as 2.3 units were also reactivated. In sharp contrast to the 1987 cycle, the analyst said it does not expect cold stacked jackups to be reactivated this time around, as the average of 68 cold stacked jackups is currently almost 35 years.
On the demand front, the contracted jackup count held up better than expected, trending closer to the group’s bull case scenario since the March introduction of its EVRISI Global Jackup Rig Count Forecast. At 283.3 units currently, the global jackup demand count is within 15.7 rigs, or 5%, of its 299 bull case scenario, and 21.3 rigs, or 8.1%, above our base case scenario. Despite potential delays in the start of ~10 contracted newbuilds, the group expects jackup demand to end the year comfortably between the 307 bull case and 253 base case estimate, or between up 8.3% or down 10.7% from current levels.
The group made note of some other findings: Ultra-deepwater utilization held below 70% for a second straight quarter, while deepwater utilization fell below 50% this month.
In addition, the Gulf of Mexico floater utilization fell below 70%; West Africa below 60%; and Southeast Asia below 40%.