What long-term recovery could look like in jack-up sectors
ACTIVITY DRIVERS AND CAPACITY
Covering the mobile offshore drilling unit (MODU) fleet as a whole, Ryan and Clara spoke in the webinar about the role of jack-ups and floaters in varying water depths offshore. With oil prices dropping from 2014-high figures, both jack-ups and floaters have seen large declines in both utilisation and day rate costs due to the global over supply.
While Energy Insights recorded as much as 45% decline in day rate costs (on the Rowan Gorilla IV rig) in 2015, this couldn’t help stem the decline in utilisation of jack-up rigs – which has fallen 11% over a two-year period, ending Q2 2015. While current utilisation rates for jack-ups (68%) and floaters (76%) are below expectations, this additional capacity due to the downturn gives promise to when the market picks up further – allowing existing assets to ramp up production, supporting any new rigs that come on stream from 2016 onwards.
JACK-UP DEMAND AND UTILISATION
The flexibility that new MODU fleets can offer offshore rig owners is set to be realised over the next nine years, according to the McKinsey specialists. While existing jack-ups and floaters still have their place, technological advancements in both flexible rigs have meant that operators can continue to produce at a sustainable $70-$80 per barrel in the long-term – $35 per barrel less than 2014 figures.
While demand for jack-ups, in particular, is expected to stay the same over the coming five years, the anticipated 15% rise in jack-up utilisation forecast has been put down to the introduction of new build deliveries, and the decommissioning of old assets.
The Energy Insights webinar believes that by 2025, existing jack-ups around the world will fall below 300 with new build, current order book, and incremental cold stacking rigs making up the additional 475+ rigs required to meet 10-year record high utilisation figures of 87%. While cost cutting may seem to be at the heart of this move by rig owners, it is worth keeping in mind that 40% of the current live jack-up rigs are 30 years of age, or older – a statistic in itself that shows that change and investment is required.
LONG-TERM STRATEGY FOR THE JACK-UP SECTOR
While it is understandable that the sector has declined in line with a drop in oil prices and utilisation rates too, the long-term future for both floater and jack-up rigs is very promising. As discussed in the previous Claxton blog, interest and order book volume for MODUs is expected to be strong over the coming years and benefit the industry in creating a more streamlined and cost-saving approach.
McKinsey experts believe that a “balanced long-term recovery” is the ideal scenario for the jack-up sectors – this relies on oil prices bouncing back to $70 minimum over the coming years, and operators committing to their original plans before the industry challenges.
“While the blow from depressed oil prices has been severe for many businesses”, The Bank of Scotland’s industry specialist Stuart White continued, “the sector is proving itself to be among one of the most resilient industries in the UK.”
With resilience, careful long-term planning, and commitment to investment that was planned post-oil price crash, rig owners can, for now, look forward to a prosperous ten years when jack-up demand and utilisation figures reach decade high levels in 2025.
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