Rig Utilization Rate

What Is Rig Utilization Rate?

The rig utilization rate depicts the number of oil drilling rigs being involved by a company as a percentage of a company's total fleet. A company's rig utilization rate frequently says a lot about both the company's possibilities and the global economic scene. Frequently during times of economic recession, rig utilization rates will be very low due to a diminished demand for oil.

Understanding Rig Utilization Rate

Alongside different metrics, the rig count and the utilization rate are reported in business and trade distributions to depict the state of the industry. Rig utilization rates might be reported by type of rig (e.g., ultra-deepwater sub, ultra-deepwater drillship) as well as by region (e.g., Gulf of Mexico, North Atlantic).

Much of the time, the higher the rig utilization rate, the higher the incomes for a firm. This is on the grounds that a high rate overcomes any barrier between investment, in building and operationalizing a rig, and utilization, which generally prompts profits. During periods of growth where the demand for oil is high, rig utilization rates frequently run at 90% or higher — sometimes to 100%.

Rig utilization rates are additionally impacted by retirements of previous rigs. For instance, an oil and gas company might retire old rigs or existing rigs to meet modern particulars. In such cases, its rig utilization rate and rig count will fall.

Activity in the oil and gas industry is measured not just by the rig utilization rate. Rigs are required to penetrate for oil and gas, so the raw number of rigs in the field — the rig count — is an important indicator also. A high rig utilization rate might signal a requirement for additional rigs in the field, expecting demand stays.

These metrics and numerous others are known as key performance indicators, and each industry has metrics of its own that demonstrate how a company or the industry as a whole is performing.

Illustration of Rig Utilization Rate

Oil company ABC has a rig utilization rate of 40% during a period of low demand. As demand increases, the company squeezes a greater amount of its rigs into operation and its utilization rate increases to 80%. During this time, oil prices likewise increase and ABC's stock price hops as profits increase. Following an extended time of high prices and supply, demand for oil craters and ABC is forced to reduce operations for its rigs and its rig utilization rate drops to 60%. The company chooses to additionally retire old rigs and modernizes others in its fleet. Accordingly, its rig utilization rate falls to 40% in two years or less. Its stock price falls during this time span from previous highs.

Highlights

• The higher the rig utilization rate, the higher the incomes for a firm.
• Rig utilization rate is a metric that is utilized to allude to the number of oil drilling rigs being utilized by an oil company as a percentage of its total fleet.
• Rig counts are one more measurement used to measure activity in the oil and gas industry.