(Jack) Up, Up and Away!

After up-and-down years spurred by the pandemic, the rig market seems to have officially exited its low point with a mass resurgence.

Rig supply for both jackups and floaters remains tight, and day rates are on the rise and expected to continue trending up. The tight market has also created opportunities for lower spec floating rigs and jackups to be reintroduced to the global fleet, as well as create discounts for long-term work in the market.

“There's a steady pipeline of [jackup rigs] purchased over the past year that will extend its working count as they finish preparations and crewing and begin their assignments,” Cinnamon Edralin, Esgian’s head of rig market research, said during a webinar July 20. “This situation has led to a tight market in particular for premium jack ups.”

Currently, the Middle East is dominating the jackup market with about 145 units currently under contract. Due to the tightness of the market, there has been an increase in interest for some of the older and lower spec rigs, as most of the higher spec rigs are concentrated in the Middle East. Because of the difficulty in securing newer rigs outside of the Middle East, day rates are increasing worldwide.

Utilization for marketed jackups is at a very high 96%. In the past year, the total supply for jackups only decreased by four. During that same timeframe, the competitive supply increased by 12, while the contracted count grew to 19. These numbers indicate demand is growing faster than supply has decreased; previously stacked units are making a comeback—and not just on speculation, but with contracts in hand.

“This was the highest jack up contracting level the market has seen in many years…But before that, the market had already been in a downturn for several years and contracting levels had been much lower,” said Edralin.

The first half of 2023 was the highest contracting level seen in many years, said Edralin. The average day rate for jackups grew more than $20,000 since June of 2022, increasing from $83,000 to $112,000. Jackups rated for water depths of 400 ft and 449 ft—which constituted 44% of all awarded contracts in the first half of this year—had day rates ranging from $110,000 to $175,000.

Jackup rigs weren’t the only units doing well however, as the market for floaters is strong as well.

“Similar to the jack up segment, the marketed floater utilization rate is quite high at 87%, with certain categories, such as the seventh-generation drill ships and the sixth-generation harsh environment semisubmersibles nearly fully booked for the rest of this year and at least partway into next year,” Edralin said.

Around 60% of the 209 drillships and semisubmersibles in the global fleet are currently under contract. While there are 11 units undergoing repairs or reactivations, only one is uncommitted, but it is understood to be targeting some likely work, Edralin said. South America continues to lead the way with 31 floaters under contract—Brazil accounts for 25 of them—and is poised to continue its growth. Drillships are poised for a strong second half of 2023.

According to Esgian’s forecasted numbers for both jackups and drillships, they are expected to continue their upward trends well into 2026. Even with some older rigs aging out of the fleet, the market’s continued growth is expected. Newbuilds for rigs on the market have been in high demand due to high utilization and market tightness.

“While demand remains high, there are some aging units that are likely to exit the competitive jack up fleet over the next several years. Those will largely be replaced by new builds entering the fleet and reactivated units,” Matthew Donovan, senior market analyst at Esgian, said.