Listen closely in the offshore arena and you may hear contractors whistling the tune to that old Bruce Springsteen song, “Glory Days.”

While offshore activity is still not back to peak levels from 2007-09, the sector gets closer every month. Worldwide offshore rig utilization climbed to 82.4% in July, according to IHS-Petrodata, the highest level since March 2009.

Utilization above 80% typically indicates a tightening market with positive momentum for rig rates and service providers. Offshore utilization among all rig classes worldwide has now exceeded 80% in eight out of the last nine months with February the only exception when utilization briefly dipped to 79.6%.

It is noteworthy that utilization also rose to 82% in July for the global jackup fleet, which is the third straight month where utilization of the lowest spec portion of the offshore fleet has exceeded 80%. For comparison, the offshore jackup fleet reported 75.7% utilization during the same month one year ago. The new figure comes in spite of the poorly utilized Gulf of Mexico, which has seen utilization flatten in the mid-50 percentile range in 2012 after a stellar 2011 run when the region’s jackup utilization rose from 36% in January to 53% by year end.

With the exception of jackup markets in the GoM and West Africa, utilization tops 80% in all other major jack up markets globally. In West Africa, jack up utilization moved up during the summer to 77.5% in July versus 70.6% in May.

The North Sea jackup market remains the tightest region globally with near full utilization of equipment. But that tightness is evident across all North Sea rig classes as noted in the August fleet update for Transocean Ltd., which reported a one-year contract extension from Total in the North Sea for the Sedco 714 beginning in December 2012 at $395,000 per day, up nearly $70,000 per day. Similarly, the Transocean John Shaw also inked a one-year extension with Taqa in the North Sea beginning in November 2013 at $360,000 per day.

Demand For High-Spec Rigs Fuels Deepwater Newbuilds

A continuing string of significant global deepwater discoveries, extensions, or appraisals make the sector the most promising in oil and gas, and that is leading contractors to build state-of-the-art equipment in a multi-year upcycle.

The latest example includes Cobalt International Energy Inc.’s successful completion of the Cameia #2 appraisal well on July 31 in the Angola pre-salt play. The step-out well, which was drilled in more than 1,515 m (5,000 ft)  of water roughly 3.5 km (2.1 miles) south of the field’s discovery, supports company claims of a 1 billion barrel field.

Following the appraisal, Cobalt inked a three-year contract for the semisubmersible SSV Catarina to expand its Angolan program. The Catarina will arrive in West Africa during the 1Q 2013 and join Diamond Offshore’s Ocean Confidence, which is scheduled to drill Cobalt’s next two Angolan pre-salt wells. Cobalt released the Ocean Confidence for 120 days after completing the Cameia #2 so the rig could drill an offshore Congo well before returning to Cobalt’s Block 21 in offshore Angola by year end.

Cobalt is the operator for the 7,400 boe/d discovery well at Cameia #1 in December 2011 (with partner Sonangol). At more than 1 Bboe, the Cameia #1 is the third largest global discovery in the last half decade with a potential 20,000 b/d in production capability. The other top two discoveries globally include the Libra 4.8 Bboe well in Brazil’s Santos Basin, and Eni’s October 2011 natural gas discovery, the Mamba 2.9 Bboe in offshore Mozambique.

It will require high-spec equipment for the massive new deepwater discoveries to reach full potential so it is no surprise that contractors continue to announce newbuild floaters, often times on spec. In August, Diamond Offshore ordered a newbuild moored semisubmersible rig, the Ocean Apex, which will be capable of working in water depths up to 1,818 m (6,000 ft). The $370 million vessel will be built at Singapore’s Jurong Shipyard.

Rig availability in the deepwater market has tightened significantly in recent months with the next opening for a ultra-deepwater (UDW) vessel in late 2013. Rig rates and contract length are responding accordingly with clean day rates for UDW vessels now approaching $600,000 per day. Repsol signed a three-year  $625,000 per day contract inclusive of mobilization costs with Rowan Drilling Co. in August for the Rowan Renaissance, a newbuild drillship capable of drilling in 3,636 m (12,000 ft) of water. It is the third drillship Rowan has ordered through the Hyundai Heavy Industries shipyard in Ulsan, South Korea. Rowan has an option outstanding through September 2012 to order a fourth drillship in the series.

Repsol will employ the Rowan Renaissance in West Africa for one year beginning in the 1Q 2014 before transferring the rig to the US GoM for the remaining two years at a rate of $615,000 per day. The clean day rate, absent mobilization, is estimated to be $590,000.

Rig rates for UDW vessels bottomed below $450,000 following the Macondo well blowout.

Other recent contract awards involving newbuilds include Seadrill, which pulled off a major league baseball-style trade with a three-rig package including two newbuilds and an existing unit that “will be named later.” The three-rig package covers 19 rig-years at a potential $4 billion, including mobilization fees. The two newbuilds include the drillships West Auriga and West Vela, which are under construction at the Samsung Shipyard in Korea with delivery planned in the first half 2013 when they will go to work in the US GoM.

Brazil was witness to more than $8.2 billion in new floater orders in August, including five newbuild drillships and five semisubmersibles. Sembcorp Marine inked a $4.03 billion order for five drillships with Sete Brasil for delivery between the 2Q 2015 and the 2Q 2019 under a 15-year charter for Petrobras. The package will include the first drillships built in Brazil for use in the Santos Basin. These are state-of-the-art vessels capable of working in water depths up to 3,030 m (10,000 ft) with drilling capability to 12,121 m (40,000 ft). The five drillship order follows a $792 million February 2012 award for a similarly configured drillship for Sete Brasil subsidiary Guarapari Drilling BV.  

Odfjell Drilling will operate three of the drillships with Seadrill operating the other three.

Keppel Offshore & Marine separately finalized a $4.1 billion order for five semisubmersible rigs with Sete Brasil with a scheduled delivery between late 2014 and 2019 under a 15-year charter for Petrobras. The original letter of intent (LOI) was signed in April 2012. The order follows a separate $809 million contract with Sete Brasil to construct one semisubmersible using Keppel’s DSS 38E design, which is rated to drill up to 10,606 m (35,000 ft) in water depths of 3,030 m.

Contact the author, Richard Mason, at rmason@hartenergy.com.