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Last Updated: May 18, 2017
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Business Trends
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uploads1495070882425-logo132.jpgAfter historical highs in 2014, jackup demand plunged by 25% from 409 units in 2014, to 308 units in 2016. With 72 newbuilds scheduled to come into the market in the next few years and only 63 units retired since 2014, the jackup market is in the midst of an oversupply situation, resulting in low utilization levels and depressed rates.


Rystad Energy forecasts a small increase in jackup demand this year, compared to 2016 levels. In line with this view, we have seen increased tendering activity during the first quarter of 2017.

Based on contract fixture data from Rystad Energy’s RigCube, Figure 1 shows the development in contracting activity from Q1 2016 to Q1 2017 for competitive rigs. We see that contracting activity picked up in the first quarter of 2017, with 36 new mutual contract fixtures. This is a 50% increase from the previous quarter and a 33% increase compared to the first quarter of 2016. Tendering activity is still low compared to the peak period between Q1 2012 and Q1 2013, when the number of fixtures for new mutual contracts averaged 77 quarterly.


The blue line in Figure 1 shows the trend of average contract duration per quarter. Durations for contracts signed in Q1 2016 averaged 19 months as compared to Q1 2017 with an average duration of 6 months. This is a 68% decrease in average contract duration for the first quarter of 2017. Eighty-three percent of new mutual contracts signed in Q1 2017 are intra-year contracts. In other words, only six of the units contracted in Q1 2017 will have a contract extending past 2017. This is a large drop compared to Q1 2016, when intra-year contracts accounted for only 42%. While the total backlog for the first quarter of 2016 added up to 25 rig years, Q1 2017 was significantly lower with approximately 18 rig years of backlog. While our forecast calls for a slight uptick in jackup demand, it will still be a very competitive market for the rig owners with units rolling off contract this year.


Taking a deeper look at contracting activity for the competitive fleet during Q1 2017 (sublet, exercised options and new mutual contracts), we see that 33% of the units were already under contract at the time they received additional work. The other 67% of rigs awarded work in Q1 2017 were not under contract at the time of fixture, and on average, had been idle for 11 months. This compares with Q1 2016, where 35% of the jackups receiving new work were already contracted, while the remaining units had, on average, been idle for 7 months. Aside from the “lower for longer” environment and operators “re-tendering”, slow approval processes and revisions to the scope of work required only add to the time it takes to secure a contract.


Over the last decade, the Middle East has been the largest market for jackup rigs. Looking at the first quarter of 2017, 30% of the awarded contracts are for work in the Middle East. Saudi Aramco is out in the market with a multi-rig requirement for incremental units as well as renewal against existing units with a start date during Q1 2018 and a duration between three and five years. Elsewhere in the region, Dubai Petroleum is also out with a requirement for term work against the renewal of two incumbent rigs. During Q1 2017, Southeast Asia and North America were slightly behind the Middle East in awarded contracts, with 25% and 22%, respectively. In Q1 2016, tendering was dominated by the Middle East (38%), with South Asia (15%) a distant second.

Figure 2 shows the development in rig rates per quarter in the last year. In order to understand the global trend in rig rates, North Sea jackup rates have been excluded from the quarterly averages. Declining rates persisted throughout Q3 2016, however during the last quarter of 2016, rates appear to be flattening out and even showed signs of a resurgence in Q1 2017 with contracting activity increasing. Rig rates averaged near $69,000/day during Q1 2017, compared to the peak period for jackup rates, between Q1 2013 and Q3 2014, when rig rates averaged $142,000/day. A situation that can still be seen as depressing for the drillers.


Towards 2020, Rystad Energy believes that jackup demand will increase, with an anticipated yearly average growth of 4%. However, the oversupply of existing units in the market, an expected influx of newbuilds and the short-term nature of contracts, contribute to our opinion that rig rates will remain at low levels going forward.

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September, 21 2019
Your Weekly Update: 16 - 20 September 2019

Market Watch  

Headline crude prices for the week beginning 16 September 2019 – Brent: US$69/b; WTI: US$63/b

  • Global crude oil prices surged at the start of the week as news that a successful drone strike on the Abqaiq processing plant and the Khurais oil field in Saudi Arabia took out over half of the Kingdom’s crude production capacity
  • Brent prices jumped above US$70/b at one point on fears on global supply disruption, but abated as President Donald Trump authorises the release of US strategic petroleum reserves to cover the market
  • Initial fears that the Saudi Arabian crude output would be crippled for months proved to be extreme, with Saudi Aramco announcing that some 70% of capacity at Abqaiq had been restored within days
  • But more worryingly is that this incident escalates the risk of a full-blown military confrontation with Iran; the US was quick to accuse Iran of the attack, citing data on the attack, which was denied by Iran
  • Yemen’s Iran-backed Houthi rebels claimed responsibility for the attack, although initial results of a Saudi investigation pointed to the weapons originating from Iran
  • For now, crude oil prices have retreated as the risk of widespread supply disruption abated, but tensions are still high in the region
  • This comes after President Trump signals that he was considering easing sanctions in an apparent thaw in the US-Iran relationship; this opportunity now appears to have evaporated
  • Saudi Arabia’s new oil energy minister, Prince Abdulaziz bin Salman, made a positive impression at the recent OPEC+ meeting, with errant members of the group signalling that they were now ready to adhere to the supply deal
  • In Venezuela, the oil crisis continues as ongoing US sanctions now mean that the country cannot find enough vessels to transport its crude, as shippers fear losing insurance coverage if they transport Venezuelan oil
  • Iran has released the UK-flagged Stena Impero vessel that it had impounded, a lone bright spot in a region now clouded by geopolitical tensions
  • Against this backdrop, the US active rig count recorded yet another fall, losing five oil and seven gas rigs for a net drop of 12 to a new total of 886 rigs
  • With the shock of the Saudi drone attacks abating, crude oil prices are retreating back to their previous range – US$60-63 for Brent and US$56-59/b for WTI – as the impact of global supply was minimised; another attack, however, might cause a more permanent shift in prices


Headlines of the week

Upstream

  • Equinor has received consent from the Norwegian Petroleum Directorate to continue operations at the Tordis and Vigdis fields through 2036 and 2040, respectively, extending the life of the North Sea fields by 34 years
  • BP has announced that it will deploy continuous measurement of methane emissions for all future oil and gas projects in a bid to reduce emissions
  • CNOPC and Niger have agreed to collaborate on a 1,892km pipeline to carry oil from Niger’s Agadem rift basin to port facilities in Benin
  • The South African government is tabling a new law that will allow the state to take a free stake of up to 10% in all new oil and gas ventures, hoping to capitalise on a surge in upstream interest after Total’s Brulpadda discovery

Midstream/Downstream

  • As the IMO deadline for low-sulfur marine fuels approaches, refiners have begun stockpiling supplies of very low-sulfur fuel oil to ensure adequate supply; this includes Japan’s Cosmo Oil that aims to begin supplying VLSFO to the domestic marine market by October 2019
  • IndianOil’s Gujarat refinery stated it ready to produce 12,900 b/d of VLSFO by October while its Haldia refinery will start producing 5,500 b/d of VLSFO by December; this should be adequate to cover the India’s marine fuel demand
  • India is considering selling a stake in BPCL, the country’s second largest refiner, to an international firm to boost competition in downstream fuel retailing that has historically been dominated by state firms
  • Valero Energy and Darling Ingredients are launching the first renewable gasoil plant in Texas, focusing on producing renewable diesel and naphtha
  • In the UK, Essar Oil’s Stanlow refinery aims to increase its diet of US crude from a current 35% to 40%, leveraging on cheaper American oil
  • The after-effects of Russia’s contaminated crude through the Druzhba pipeline continues as Total issues a tender to sell 1.3 million barrels of tainted Ural crude through Rotterdam after failing to process it

Natural Gas/LNG

  • Poland has won a ruling from the EU courts to reduce Russian control over the key EU Opal pipeline that carries Russian gas from the Nord Stream link to Germany, preventing Gazprom from using most of Opal capacity in a bit to increase energy security for Eastern European countries
  • Vitol and Mozambique’s state player ENH have set up a new joint venture in Singapore to capitalise on trading opportunities for LNG, LPG, and condensate
  • Australia’s Liquefied Natural Gas Ltd and Delta Offshore Energy will supply gas from the Magnolia fields to an LNG-to-power project in Bac Lieu, Vietnam
  • Eni’s Baltim South West gas field offshore Egypt has started up production, only 3 years after discovery, producing an initial 100 mscf/d of gas
  • US gas player Sempra is looking to take FID on its Energia Costa Azul LNG project in Mexico’s Baja California region by the end of 2019
  • Egypt has announced that it expects to receive first natural gas from Israel by end-2019 through the East Mediterranean Gas pipeline, with initial supplies of 200 mscf/d that will rise to 500 mscf/d by 2020
  • The Independence floating LNG terminal in Lithuania – built to reduce the Baltic region’s dependence on Russian gas – is set to receive its first-ever cargo from Siberia, likely from Novatek’s LNG projects in Yamal
September, 20 2019
Financial Review: Second-Quarter 2019
Key findings
  • Brent crude oil daily average prices were 9% lower in second-quarter 2019 than in second-quarter 2018 and averaged $68 per barrel
  • The 117 companies in this study increased their combined liquids production 4.6% in second-quarter 2019 from second-quarter 2018, and their natural gas production increased 5.0% during the same period
  • Nearly half of the companies were free cash flow positive—that is, they generated more cash from operations than their capital expenditures
  • Dividends plus share repurchases were nearly one-third of cash from operations, slightly lower than the six-year high set in first-quarter 2019

Distributions to shareholders via dividends and share repurchases amounted to nearly 33% of cash from operations


See entire second-quarter review

September, 20 2019