Shallow water rig builders in deep trouble on back of looming jackup glut

Day rates are also under pressure.

Shallow water used to be viewed as a safe haven for jackup builders in the beleaguered oil and gas sector. But even this safe space is under threat as the oil and gas bear cycle intensifies.

According to Joel Ng, analyst at KGI Fraser, shallow water operators such as Ezion are at risk not only from lower utilisation and day rates but also from a looming jackup oversupply.

Utilisation and day rates have already fallen significantly in most regions, while key regions such as Southeast Asia and Gulf of Mexico are also idling more rigs.

Meanwhile, an oversupply is on the horizon as there are 69 jackups estimated to come into the market in 2015. Although an estimated 240 jackups and 125 floaters are in need of replacement, operators have the option of keeping these older vessels.

“This confidence in shallow waters was put to the test when rig operators announced contract cancellations. This not only undermined the confidence in shallow waters, but confidence too in long term contracts thought to be safeguarded from the potential oversupply in the rig market,” Ng stated.