How Are Offshore Drilling Rig Utilization Rates Trending?

The rig utilization rate has drastically fallen compared to its historical rates. The utilization rate is an important indicator to gauge demand and activity in the offshore drilling industry.

A rising utilization rate hints at a positive performance for offshore drillers (XLE) such as Transocean (RIG), Rowan Companies (RDC), Diamond Offshore Drilling (DO), Noble (NE), Seadrill (SDRL), and Ensco (ESV).

The drillship utilization rate almost remained constant at 63% in August 2016 compared to the previous month. However, it has fallen drastically from 75% at the start of the year and from 77% in August 2015. On the other hand, the utilization rate for semisubmersibles fell 3% to 57% from the last month. It has fallen from 73% at the start of the year and 74% in August 2015.

The jack-up utilization almost remained constant at 59% in August 2016. That’s a decline from 68% at the start of the year and 70% in August 2015. The utilization rate is calculated as the ratio of working rigs to the number of available rigs.

Higher utilization rates signify a lower mismatch between the supply and demand for rigs compared to a lower utilization rate. A higher utilization rate attracts a higher day rate and vice versa.

Currently, the utilization rates are being pressured as a result of very low demand and a lot of idle rigs. In the coming months, we expect the scrapping activity to pick up pace, which could improve the situation a bit. However, rebalancing could take a year or two. Deepwater market utilization is expected to fall further. The break-even rates for jack-ups are lower compared to the deepwater jack-up market, so it’s expected to recover faster.