Jack-up rig specialist Shelf Drilling expects rig utilization to further increase in 2019, but the CEO has acknowledged the dayrates have yet to pick up.
Shelf Drilling on Wednesday posted a net loss for the third quarter of $10 million, which is more or less flat compared to last year’s 3Q. Revenues increased to $160 million, up from $137 million a year ago.
The company’s capex increased to $92 million in the quarter compared to $28 million a year ago, mainly due to the acquisition and mobilization of Shelf Drilling Scepter which it bought from Diamond Offshore in July.
Had it not been for the acquisition, capex would have been lower than last year – some $18 million. As of September 30, 2018, Shelf Drilling owned a fleet of 38 jack-up rigs and one swamp barge, of which 26 rigs were contracted.
According to Shelf, contract backlog was $895 million across rigs with a weighted average backlog dayrate of $84.000 per day and average contracted days of 410 per rig as of September 30, 2018, compared with $1.4 billion across 26 contracted rigs with a weighted average dayrate of $96.200 per day and average contracted days of 551 per rig as of September 30, 2017.
Dayrates stubbornly low
David Mullen, Chief Executive Officer, said:”…While the market has continued to improve with increasing utilization for the global jack-up fleet, the pricing recovery is taking longer to develop than we had initially thought at the beginning of the year.”
“Even with the recent drop in oil price, current commodity prices support a continuing growth in activity across our key markets, and we expect global jack-up utilization to further improve in 2019.”
When it comes to the outlook, apart from Mullen’s comments, the company on Wednesday said that following a severe, multi-year downturn in the offshore drilling industry, “there are indications across our markets of improving demand for jack-up rig services.”
Price competition among jack-up rig contractors continues to be intense and market dayrates remain at historically low levels.
The driller pointed to the Brent crude oil prices, “a key driver of exploration, development and production activity” stating the prices had significantly increased from a low of $27.88 per barrel on January 20, 2016, to a high of $86.07 per barrel on October 4, 2018.
“Additionally, the average Brent crude oil price has exceeded $70 per barrel year-to-date 2018. We believe price stabilization at the current levels combined with the lack of investment in new development projects over the past four years will stimulate an increase in offshore activity,” Shelf said.
Worth noting, Brent continued its fall from October highs and was trading at $65.47 per barrel on Wednesday.
Jack-up utilization rising. Competition intense
Apart from the oil price, there are other factors determining an offshore rig’s dayrate, such as a type, rig supply, and demand, region, competition etc.
Shelf, one of the world’s largest jack-up drilling companies feels dayrates and utilization will recover more quickly for jack-up rigs than deepwater rigs due to the lower breakeven prices and shorter cycle times for many workover and development programs in shallow water basins.
Despite this, Shelf says that price competition among jack-up rig contractors continues to be intense and market dayrates remain at historically low levels.
“While we remain optimistic about the improving trends surrounding the jack-up market, there may be some continued challenges in the near term as several of our long-term contracts expire, and certain rigs are re-contracted at lower dayrates,” Shelf said.
According to the driller the global number of contracted jack-up rigs has begun to gradually increase, growing by 9% from 311 rigs in January 2017 to 338 rigs in October 2018, and there has been a significant increase in tendering activity in 2018 compared to 2017 and 2016, which has the potential to result in a continued increase in the global number of contracted rigs.
“We have noted a particular increase in marketing and tendering activity in the Middle East and West Africa, and the oil and gas companies in these regions have indicated that they will increase their activity in 2019 and beyond,” Shelf Drilling said.
Offshore Energy Today Staff