Scraping the Bottom of the Barrel

The offshore rig market continues its slide with worldwide rig demand falling by 32 units since December 1998, according to Offshore Data Services, Inc. Over the last three months, worldwide demand has fallen from 473 rigs to 441 rigs, the lowest level of demand since August 1992, and a far cry from one year ago when worldwide rig demand reached 542. The one-year, 101-rig net decline in rig demand is staggering in its own right, however, oil company cut backs undoubtedly will push demand lower still. The U.S. Gulf of Mexico rig count is the poster child for the ravaging effects of low oil and natural gas prices. Demand in the region has declined steadily since early 1998 and currently stands at a mere 119 rigs, an 11-rig decrease over the last three months. Demand for shallow water rigs has been hardest hit and U.S. Gulf day rates have fallen below the $10,000 barrier for certain units. Even top-of-the-line fourth-generation semis have seen the upper end of their pay scale drop about $25,000 per day since December. Much like the rest of the world, the only variable that will lead to increasing rig demand in the region is much improved oil prices. In short, the outlook for the worldwide rig market is bleak, at least in the short-term. Over the long-term, only an increase in world oil prices to a level above $15 per barrel will result in a turnaround in offshore rig demand.