Jack-up market has experienced record-high contracting activity over the past months, but utilization has only been stable at ~80%.

Consensus view is pretty harmonized that we will see improvement in jack-up rates later this year or early 2011. We are a bit more reluctant, in our view we need to see improvement in the market for standard international jack-ups before we get any pricing power for both premium and standard rigs. Also, asset values in recent secondhand transaction does not yield support to current stock market valuation and we see risk on the downside in future secondhand sales. On a relative basis we still see more value in jack-up names than floater companies, but due to the strong relative performance we see risk that the jack-up names will take a dip.

The jack-up segment has experienced high activity and utilization for international rigs has been stable at 80%, which has been surprising to us as we had expected a drop. A large number of contract awards so far this year have kept utilization stable. However, most of the contract awards have been short-term. Premium jack-ups have experienced improved utilization and are currently at 93% while for standard rigs the similar number is 75%.

Utilization for Premium jack-ups

Utilization for Standard jack-ups

Looking at number of available rigs in the next 6 months, the number has been stable around 180 rigs over the past months. This indicates that new contract awards are short-term and that contract lead-times still are short.

Available int'l jack-ups the next 6 months is high

A bit surprising is that demand for jack-ups is down vs our update late January. This is obviously impacted by the positive fact that a large number of the outstanding tenders have materialized to contracts, but it’s a bit disappointing that this has not been replaced by new demand. It could be an indication that much of the activity so far in 2010 was pent-up demand from 2009 and that we are set for lower activity in the months to come. In total demand is down 210 rig months vs January.

Contract coverage for jack-ups excluding US GoM

Source: DNB NOR Markets

Updated at:16-05-2010