A commonly used method, but one that is causing misrepresentation in market outlooks, considers only contracted rig utilization within the marketed (i.e., excluding cold stacked) rig fleet.

This method looks at how many rigs are currently on hire within a set period but does not consider those non-working rigs that have future contracts in place.

Utilization of such rigs in all three segments – jack-ups, semi-submersibles, and drillships – remains under 85 percent, which is widely regarded as the minimum level needed to spur increases in dayrates and reactivations.

Jack-ups are leading the way at 82 percent utilization, followed by drillships at around 79 percent, and semisubs trailing behind at just 64 percent after steadily falling away in 2021, before a rally in the past month.

But dayrates are quickly increasing, rig reactivations have started, and rig sales of units stranded at the shipyards are taking off. All of these are indications of a tight rig market, but those utilization levels are not high enough to cause the type of increases we have seen.

In reality, utilization is much higher

To get an idea of what is going on, you need to also consider those rigs that are currently idle, undergoing reactivation, or other shipyard work but are committed to working in the future and hence not available for hire in the near term.

In such an analysis, semisubs are still lagging behind jack-ups and drillships with utilization at 82 percent, some 18 percent above the contracted level. Jack-up and drillship usage are both up 10 percent over contracted utilization, with 92 percent for drillships, representing a nearly sold-out market.

Break this down further by region or specific rig type – including design, age, and capabilities – then these figures become even higher in some cases. This is starkly demonstrated by the U.S. Gulf of Mexico and Brazilian drillship markets, which are both currently fully utilized with all rigs either currently on hire or preparing for future campaigns.

Extra supply is not a cheap or quick fix

For the first time in several years, due to this increasing committed utilization, most new rig contracts are being fixed at dayrates that are higher than their prior contracts – another indicator of a tightening rig market.

As active rigs sell out, especially those that meet the technical specifications required for an operator’s campaign, drilling contractors have begun to assess the cold stacked and stranded newbuild fleets to help remedy the sudden supply shortage. With many operators bidding for drilling programs that do not begin until late 2022 or 2023, drilling contractors have the time necessary to reactivate or complete the construction of these rigs. Most rig owners report needing a 6 to 12-month reactivation period.

These rigs, however, are only reactivated for signed, multi-year contracts. Rig owners do not have the financial wherewithal to reactivate speculatively, given that costs for such shipyard work are estimated to cost, for example with a floating rig, anywhere from $50 million to $100 million.

In the interim, as tendering and direct negotiations for offshore rigs continue to surge, especially so with the renewed focus on energy security following the invasion of Ukraine by Russia, rig availability will be squeezed further and dayrates – now close to $400,000 per day for 7th generation drillships – have the potential to reach highs not witnessed in almost a decade.

This article was adapted from：https://www.rigzone.com/