By OGJ editors
HOUSTON, June 27 -- Three mobile offshore rigs departed the Gulf of Mexico for other markets this week, reducing the available fleet to 179 units, officials at ODS-Petrodata, Houston, said Friday. The number of rigs under contract also was down by 3 to 129 in those waters, dipping the utilization rate to 72.1%.
The deepwater drilling market for rigs capable of working in water depths greater than 4,500 ft "will be soft for at least the next 12 months" as a result of "a shortage of projects that will utilize the full capabilities of these rigs, which will lead to lower day rates," analysts at UBS Warburg LLC, New York, reported this week.
Meanwhile, US drilling activity rebounded with 1,074 rotary rigs working this week, 7 more than the previous week and up from 840 during the same period last year, said officials at Baker Hughes Inc.
The gain was primarily in land drilling, up 7 rigs to 949 working. However, inland waters activity also increased by 3 rigs to 19. Offshore drilling decreased by 4 rigs to 101 in the Gulf of Mexico, but was down by only 3 rigs to 106 for the US as a whole.
Canada's rig count dropped by 27 units to 310 working this week, up from 250 at the same time a year ago.
Among US rigs, drilling for natural gas increased by 9 units to 924, while only 144 rigs were drilling for oil, down 4 from the previous week. There were 6 rigs unclassified. Directional drilling was unchanged at 270 units this week. Horizontal drilling decreased by 2 to 85 rigs working.
California led the rebound this week, up 3 rigs with 23 working. Alaska's rig count increased by 1 to 9. Louisiana and Oklahoma were unchanged at 154 and 129, respectively. There were 466 rotary rigs working in Texas this week, 4 fewer than the previous week. Wyoming was down 2 rigs to 61. New Mexico had 67 rotary rigs drilling, down 1 from the previous week.
ODS-Petrodata reported the number of mobile offshore rigs under contract in European waters was unchanged at 83 out of the 100 units available, for a utilization rate of 83%. Worldwide demand for offshore rigs was unchanged for the second consecutive week, with 529 rigs under contract out of a total fleet of 658, for a global utilization rate of 80.4%.
Deepwater market
"The deepwater rig market has moved out of balance over the past year, and based on our research, we believe the amount of available supply will worsen over the next 6-12 months," said James Stone, managing director, oil field services equity research, for UBS Investment, in a June 24 report.
Demand for deepwater rigs is rising, but not as fast as supply, Stone claimed. "While it is relatively easy to quantify the available supply by looking at the contract status of each rig, there is a more subtle change in rig supply that has been ongoing for the past 2 years and is likely to continue to be a factor over the next several years," he said.
Stone defines that factor as "capacity creep," resulting from "a combination of several factors and forces, which result in a growing number of available rig days." It's part of "a broad based industry effort, primarily among the service companies, to develop new technology to improve drilling efficiency and reduce rig time, particularly in deep water, he said.
"Some of these initiatives are aimed at extending the water depth of smaller rigs (through the use of) alloy risers, subsea mudlift drilling, and smaller blowout preventers," said Stone. "Other technology is focused on the well construction process, better equipment for drilling wells (drill bits, fluid systems, expandable tubulars) or better information technology (incident avoidance software, online maintenance capabilities).
"All of these efforts are reducing the time it takes to drill wells," he said. "Yet we do not believe that just because an oil company can drill wells faster, that company will necessarily drill more wells. Time to drill is not the gating factor in deepwater; the gating factor is engineering resources and prospect development capacity."
There are currently 70 semisubmersible rigs and drillships capable of drilling in water depths greater than 4,000 ft, plus "another 4 newbuilds that are scheduled to enter the fleet by the middle of 2005," Stone said. "Currently, only 14% of these deepwater units are uncontracted, but that figure is expected to rise sharply to 30% for the third quarter of 2003 and 43% by the end of the fourth quarter of this year." That could change, he said, "if operators decide to extend contracts."
Looking at the market for deepwater rigs by water depth classification, Stone said, the lower—or "'regular' deep"—end of the market, including rigs capable of working in depths of 4,000-7,000 ft, "appears to be the most oversupplied. The ultra deep market for rigs capable of working in depths greater than 8,000 ft "looks like it will remain pretty tight, even at the low end of our demand forecast," he said.
Because deepwater rigs "are generally newer and have greater drilling efficiencies than other floating rigs, even in shallower waters," many will likely find work in those reduced depths, "which will keep utilization rtes relatively high," said Stone. "However, because of the competition in the mid-water floating rig market, day rates will likely suffer when these deepwater rigs work in shallower water."
Stone foresees "sufficient demand for a handful of ultradeep units, such that day rates should not deteriorate much from current levels, and rates in excess of $150,000/day are quite possible." However, day rates for some rigs rated for 4,000-5,000 ft could drop "as low as $70,000/day," he said, "although we believe that most new contract fixtures will be in the range of $90,000-120,000(/day) for the next 12 months."
That would put day rates "well above cash costs for the rigs, but well below what is necessary for most of these rigs to earn an adequate return on capital employed, particularly the newbuilds," Stone said.
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