NEW YORK – Evercore ISI has released an update on the recent rig market.
James West, senior managing director and partner for the analyst firm’s Oilfield Services, Equipment & Drilling group, said in the note: “Offshore drillers are in the midst of a cyclical downturn, exacerbated by the collapse of Brent oil prices. As a result, several contractors have eliminated their monthly fleet status reports.
“This monthly report serves to fill the information gap, searching for signs of potential market stability. We examine trends in contracting activity and day rates, fleet operations, and near-term contract coverage. Although we remain negative on the group as a whole, seeing a challenged offshore rig market until 2018 at least, we do not believe this is a group that can be ignored either.”
Contracting activity, day rates
The update found that only four contracts (two new mutuals, two mutual renegotiations) have been announced thus far this month, well below pace of 16 at this time in April.
A total of 25 contracts were announced last month, a slight acceleration from 22 in March but below the 34 contracts announced in February. Three quarters of the April contracts were for jackups, predominantly in the Middle East or Southeast Asia, where the group expects to see continued high-grading demand but soft day rates.
West Africa is also a potential area of jackup demand, it said, with Chevron signing Shelf Drilling’s Trident VIII for two years at an undisclosed rate this month. Floater contracts continue to be rare, with Ensco renegotiating the five year contracts on the ENSCO 6001 and ENSCO 6002 in exchange for a 1.5-year extension on the fourth-gen 6002 through 2019.
The ENSCO 6003 and ENSCO 6004 were released as a result and Ensco announced plans to retire these semisubmersibles, as rig retirements reaccelerated during 1Q earnings season. Five semisubmersibles have been retired this month, bringing the YTD total to 12 floaters and 11 jackups, or 57 floaters and 27 jackups over the past two years.
Transocean leads with 24 floaters or 42% of all floaters retired to date, including the recent Transocean John Shaw and Deepwater Navigator, followed by Diamond with 11 floaters or 19% including the recent Ocean General and Ambassador. Ensco is in third place with eight units or 14% of all floaters retired to date.
Fleet ops update
Despite Ensco, Diamond, and Atwood retiring floaters over the past month, Evercore found utilization deteriorated with the contracted count down eight or 8.1% from mid-April. The active jackup count fell by one or 1%. Rowan put one jackup back to work, Ralph Coffman, while Noble had three floaters and a jackup come off rate.
Noble announced a settlement with Freeport-McMoRan to terminate for convenience the rig contracts for the Tom Madden and Sam Croft, while Dave Beard completed a contract and will be cold stacked but Mick O’Brien commenced acceptance testing ahead of a two well contract with an undisclosed operator in the UAE. Average day rates decreased for jackups and floaters by 1.8% and 1.9%, respectively. Within Evercore ISI’s coverage universe, Rowan continues to have the highest floater utilization and average day rate at $625,000, while North Atlantic Drilling Ltd. has the highest jackup utilization and average day rate at $211,000.
The global floater fleet is 34% contracted in 2017 and 24% contracted in 2018, largely unchanged from last month, while global jackup coverage was also flat at 26% and 16%, respectively. As a result of the contract terminations and relatively weak contracting activity, all companies reported a net decline in floater and jackup rig months since mid-April.