Jack-up sector is hardest hit in current downturn
The end-June rig utilisation figures in the North Sea revealed levels of 55% for the semi-submersible sector, with 21 rigs active out of a current fleet of 38. In the jack-up sector utilisation slipped again and is currently down to 47%, with 19 of the fleet’s 40 rigs on contract. This is the lowest number of active jack-ups in the North Sea for over 10 years and unfortunately there is no sign yet of the downturn easing.
While North Sea rig market conditions remain challenging, it seems the semi-submersible sector has stabilised a little in terms of activity, having recorded 21 active rigs for the past three months. However, the outlook is precarious for the next six months as new contract opportunities are severely restricted and up to 10 semisubs are due to end their existing contracts before end-year, although three of the fixtures contain options and offer an opportunity to extend.
Market conditions in the jack-up sector have deteriorated more rapidly this year compared with semi-submersibles. For the past three years, jack-up utilisation has been constantly higher than for semi-submersibles; this has now changed, but the switch may be temporary. The low level of currently active jack-ups is in stark contrast to the sector’s peak in December 2014 when 49 jack-ups were working in the North Sea. Meanwhile, the current working tally could dip further before end-year as six of the current contracts are due finish over the next six months and only one contains options, offering the prospect of an extension.
New contract opportunities remain scarce and there were no new contracts identified in June for either jack-ups or semi-submersibles, although drillers may be holding back on revealing new contract details until their respective second-quarter results are announced, some of which have been planned for late-August.
The North Sea rig market, like many other offshore sectors, is experiencing pressures from several sources in the form of low energy prices, low operator expenditure, weak E&A drilling, rising competition from renewables and demands for low-carbon energy, all compounded by the effects of the Covid-19 pandemic. It seems inevitable that the current fleet size in the North Sea and globally cannot be sustained and may require more stringent action than scrapping older rigs.
For the short-term, offshore drillers are having to review their finances once again. This is a disappointing setback after the long-lasting problems of weak rig demand from the previous downturn and subsequent low dayrates seemed to be finally coming to a close towards the end of 2019.
North Sea Reporter
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