Low, but stable, rig utilisation and day rates in the Middle East, but bad news for older tonnage as newbuilds gain popularity in the Middle East offshore jackup market
By Dr Rina Samsudin, senior analyst for the Middle East, ODS-Petrodata Ltd.
The Middle East’s mobile offshore drilling rig market is still feeling the brunt of the economic downturn, as many oil and gas companies have yet to resume former drilling levels after cutting back on activity in 2008/2009. Jackup utilisation has remained low this year, currently at around 75%, compared to 2008 when utilisation averaged at over 90%.
Rig rates have also dropped significantly since 2008, due to stiff competition for drilling contracts; recent bidding activity saw jackups rated for water depths of 250-300 fsw being offered at around US$60 000-70 000/day, whereas a couple of years ago these units would have commanded double these figures. Furthermore, recent tendering activity has been considered disappointing (measured by the number of tenders and how much of it is for term work).
In the region, drilling contractors have cold-stacked six jackups to help reduce the oversupply of rigs, but given that at least 20 more jackups are still sitting idle without any future contracts, a substantial number of additional units will need to be temporarily or permanently retired from drilling service in order to tighten the market in the contractor’s favour.
One trend that might be of concern to some rig owners is a growing preference among oil companies – not just those in the Middle East – to use newer jackups, which tend to be larger with higher operating specifications.
In response to this shift in customer preference, some drilling contractors are replacing older units by buying and/or building new rigs. This does not bode well for the many older units that are still in active service today (around 80% of the Middle East’s jackup fleet is at least 25 years old).
In the near term, prospects of a recovery to 2008’s activity levels are slim, as anticipated incremental demand from operators is overshadowed by the current regional overhang of supply. Moreover, market conditions elsewhere will also have to improve, seeing as tenders from this part of the world will be sure to attract interest from drilling companies with idle rigs abroad.
One consolation to rig owners is that rig usage levels as well as day rates in the region have remained relatively stable this year. For service companies that are not restricted by sanctions, Iran has strong growth potential and is one of the few places in the Middle East that is offering long-term jackup contracts (i.e. at least three years). Otherwise, the drilling community is pinning its hopes on a resurgence in demand in the bigger sectors such as KSA and Qatar – but nothing definitive has been forthcoming.
As for the region’s underexplored areas in deeper waters, such as the Red Sea, Gulf of Aden and Arabian Sea, there are stirrings of exploration activity.
In the Red Sea for instance, Saudi Arabia has been collecting seismic data and will start a 3D seismic acquisition campaign later this year; Sudan recently drilled a couple of exploratory wells using a jackup; at least one operator is expected to deploy a deepwater rig to drill on the Egyptian shelf in a few months; and Yemen recently put up various blocks on offer, including the part-offshore Block 55 which extends into the Red Sea. Needless to say, a major find in these waters would be a great boost to the regional industry.
ODS-Petrodata Ltd is a world leader in providing offshore market news, data and research to the oil and gas industry, with offices in Houston, Aberdeen, Oslo, Dubai and Singapore.
