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).
Floaters and jack-ups
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.
What will the future bring?
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.