Thank you. For now I'd like to just go with the flow, until I learn a little bit more about IHUB, and its rules/policies/politics.
As far as GSF, here is an interesting article about consolidation, copied below. Consolidation factored strongly into my investment strategy on this one.
LITO
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Weekly Offshore Rig Review: Jackups Locked In
RigLogix Thursday, December 07, 2006
As 2006 draws to a close, we are going to be looking forward at the prospects for the major segments of the offshore rig fleet in the coming years. We will start by examining the current level of future contracted time for the competitive jackup fleet and then comparing those numbers across the leading offshore drilling contractors' fleets.
More Contracts in Place
As a guide to current and future levels of rig demand, we'll be looking at the percentage of the jackup fleet that already had contracts and options in place for the following year by early December of the previous year. In the current instance, as of today, December 7, 2006, 69% of the available jackup rig time during 2007 is already contracted. Thus, of all the competitive jackups that are currently in the market and those that are set to be delivered next year, a significant majority of the days that those rigs will be available to work are already contracted.
Hypothetically, if all of the rig days that were already contracted were to be meted out as quickly as possible following the start of the year, there would be no jackup time available for new contracts until September 2007. Of course, this is not the way things actually work out, since some rigs are contracted the entire year and well into 2008 or even 2009 while other rigs are only marginally contracted and mostly available for work in 2007. However, this comparison illustrates the length of the current contract backlog that many rigs have.
As a reference to the past state of the jackup fleet, the table below provides a comparison of the percentage of next year's rig time contracted at the start of December each of the last three years. As can be clearly seen, as the amount of contracted time increases, day rates have climbed as well.
Year End Jackup Rig Demand Comparison
Date % of Rig Time Cont. For Next Year Avg. Day Rate For Next Year
Dec 7, '06 (for '07) 69% $125,358
Dec 7, '05 (for '06) 51% $78,796
Dec 7, '04 (for '05) 41% $52,844
We can look back at the percentage of jackup time for 2006 that was contracted as of one year ago. So, as of December 7, 2005, 51% of the available jackup rig time for 2006 was contracted. That is 18 percentage points below the current level of contracts in place for next year. Taken another way, there are 42% more contracted days currently in place for 2007 than there were one year ago for 2006.
Looking back another year to December 7, 2004, only 41% of the available jackup rig time for 2005 was contracted as of that date. That is 10 percentage points less than in 2005, and it is 28 percentage point fewer than today. Comparing the current level of future contracted time to the level in 2004, we can see that 81% more days are currently contracted for 2007 than were contracted for 2005 as of this day in 2004.
The obvious conclusion is that the level of jackup demand has increased significantly over the last two years. Additionally, during the last two years, the length of contracts has also increased noticeably, which has pushed contracts further out into the future. Along with the decrease in rig availability and increase in contract lengths, jackups have seen rapidly climbing day rates as operators have competed for rig time, as illustrated by the rising average day rates shown above.
The Companies Benefitting
With longer contracts, decreasing rig availability, and rising day rates, the jackup market is clearly a driller's market. Offshore drilling contractors now have more rigs contracted and are earning historically high day rates for those rigs. At the same time, some contractors have been more successful than others at garnering higher day rates and longer contracts.
The table below compares the level of future contracts among the drilling contractors that currently have at least 20 competitive jackup rigs. For each company, their current jackup fleet size is given, along with the levels of rig time contracted and the average day rates for those contracts for the next three years. These figures are based on the published contract information that is currently available in RigLogix and are not predictions.
Future Contracted Time by Manager
Current 2007 2008 2009
Manager Jackups % Time Cont. Avg. Day Rate % Time Cont. Avg. Day Rate % Time Cont. Avg. Day Rate
GlobalSantaFe 43 rigs 76% $150,537 55% $165,929 22% $168,719
Noble 41 rigs 82% $115,111 35% $124,795 15% $131,535
ENSCO 41 rigs 66% $138,578 38% $131,050 25% $133,398
Pride 27 rigs 52% $93,677 19% $97,340 11% $105,387
Transocean 24 rigs 88% $112,515 49% $134,314 29% $140,786
Rowan 21 rigs 65% $173,303 50% $167,554 23% $167,616
All Others 124 rigs 66% $108,750 38% $118,678 25% $96,387
World 321 rigs 69% $125,358 40% $137,218 22% $129,037
Looking at the table above, it is clear that Transocean has been the most successful at locking its jackup fleet into contracts for the next several years. With 88% of its jackup rig time for 2007 already contracted, Transocean will have its jackups working at near capacity throughout the year with little time for new work. At the same time, Transocean has only the fifth (out of six) highest level of day rates, which are about 35% lower than the day rate leader among this group and 10% below the worldwide average. It appears that Transocean has sacrificed per rig revenue in favor of longer term contract stability.
However, looking at Rowan's jackup fleet, it appears that sacrifice is not entirely necessary. While Rowan has one of the lower levels of contracted time for 2007, it does have the second highest level of contracted time for 2008. In addition, the company has the highest average jackup day rates of any of the leading offshore drilling contractors. That combination should lead to strong revenues for the company in 2007 and 2008.
At the other end of the spectrum, Pride has the lowest average day rates and the lowest level of contracted time among these leading contractors. For operators, Pride's jackup fleet presents a relative bargain by comparison to other contractors, and with almost half of the company's rig time during 2007 not yet contracted, there is plenty of opportunity to hire Pride rigs during 2007 and beyond.
Conclusion
As can be seen, the future of the jackup market and the future revenue potential for the offshore drilling contractors looks strong for the next several years. Compared to the last two years, a much larger portion of the available rig time over the next two years is already contracted. This means that the demand for rigs is strong, and many rigs are already set to work. Even with the ongoing slowing in jackup demand and day rate increases, the jackup fleet has a bright future.
For More Information on the Offshore Rig Fleet:
RigLogix can provide the information that you need about the offshore rig fleet, whether you need utilization and industry trends or detailed reports on future rig contracts. Subscribing to RigLogix will allow you to access dozens of prebuilt reports and build your own custom reports using hundreds of available data columns. For more information about a RigLogix subscription, visit www.riglogix.com.
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