A Closer Look at Worldwide Deepwater Drilling

Given that oil prices remain constructive, we may see some tightening for deepwater rig fixtures in the coming months. Crude futures averaged nearly $103 for the month of March. That is up nearly 15 percent from February's average of $90 per barrel.

While there is some slack created by uncertainties in the Middle East and North African markets, the bottom line is that the current price environment creates ample operator-incentive to increase budgets in any region where drilling is feasible.

Currently, there are 206 rigs under contract out of a total supply of 261 floaters, which amounts to 78 percent utilization across the globe. Even though utilization has not been ideal, dayrates for floaters are beginning to improve.

However, we note that there is some bifurcation as drillships and rigs capable of working in the deepest environments pull the average up. In the past year average dayrates for drillships have climbed from $390k/day to approximately $430k/day. Conversely, semisubmersible dayrates have held steady at approximately $360k/day.

Over the past five years, drillships have commanded a 6 percent premium relative to dayrates for semisubmersibles. During March 2010, the disparity between the two mirrored the 6 percent average. Since then, the gap has widened and is currently at a 23 percent premium. Standby rates, for rigs waiting on location in the Gulf of Mexico, are exacerbating the situation. Nine of the twelve rigs waiting on location in the GOM are semisubmersibles.

While the overall mix of floaters favors semisubmersibles, which account for three-quarters of the fleet, the mix among ultra-deepwater assets is more equitable. Of the 92 rigs capable of operating in water depths of 7,500' or greater, the mix is 55 (semis) to 45 percent (drillships).

In the next three years we expect 60 newbuild ultra-deepwater rigs to enter the market. Considering that only 20 of these newbuilds are semisubmersibles, the mix will have reversed itself to favoring drillships (53%/47%) by the end of 2013.