Sustained high crude oil prices combined with offshore exploration successes are contributing to rising demand for international jack up drilling rigs in key markets, particularly Southeast Asia, the Middle East, and the North Sea, said James C. West, analyst with Barclays Capital Inc.
A high percentage of existing rigs are nearing the end of their service life, which will support the demand for newer equipment, West said in a Nov. 1 research note.
"Concerns that market dynamics will be disrupted by the 92 jack ups under construction (two thirds of which are uncontracted) are overblown in our view," West said. "We believe the jack up market is on the cusp of a meaningful retirement cycle, and that these new units will be absorbed, extending current tight market conditions."
West counted 474 jack up rigs in the worldwide fleet, noting that 317 units are 25 years or older.
"We believe the mass aging of the worldwide fleet coupled with increasing operator preference for new equipment will lead to a significant retirement cycle," West said.
Demand for both premium and standard jack up rigs continues to improve, he said.
In the Gulf of Mexico, West sees contract durations lengthening. He also suggests the region could experience "substantial incremental demand for high-specification jack ups to support deep-gas opportunities."
Industry awaits well test results from McMoRan Exploration Co. of New Orleans, which cleaned out the Davy Jones-1 wellbore on the gulf shelf off Louisiana to 28,630 ft. That will enable testing of all 165 ft of Wilcox sand perforations (OGJ, Oct. 29, 2012, p. 28).