In the past year, there were many observations that the offshore rig market had "turned the corner," and while Westwood highlighted a few areas of improvement, they were mostly isolated. However, now that 2018 is over, it is time to look at where the market stands heading into 2019. Riglogix data shows 19 rigs were delivered in 2018, comprising 15 jackups and four semisubmersibles (semis). As of Dec. 31, there were still 112 rigs listed as under construction, including 75 jackups, nine semis, 21 drillships and seven tender-assist units.
In the U.S. Gulf of Mexico, consistent 100-percent utilization of the 12-rig jackup fleet has pushed day rates for some longlegged units up by $20,000 or more (less for smaller rigs) to as high as $85,000. Of course, any commentary regarding day rates must mention the recent Chevron/ Transocean fixture for the U.S. Gulf of Mexico. One of Transocean's two newbuild ultra-deepwater drillships will now be outfitted with, among other features, the world's first 20,000-psi blowout-preventer system. The deal came in at a day rate of roughly $454,000, certainly well above market rates.
While Westwood believes the days of $600,000-plus day rates are gone, there is still plenty of upside potential. Westwood believes for upcoming contract fixtures, most rig markets remain oversupplied, and thus there is little reason to expect any substantial rate improvement. However, in markets where rig supply and demand are tighter, rigs will likely realize higher rates, as will those rigs differentiated by key features and/or capabilities sought by E&P companies.
In conclusion, the wheels for a recovery are undoubtedly in motion. Westwood believes as the year progresses, utilization and day rate increases will come, but likely later rather than sooner. In the meantime, the market momentum will hopefully continue to build, with visible signs of wholesale improvement emerging in the second half of the year.
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