Economic Report 2016 - Oil & Gas UK

Furthermore, the global oversupply of assets is reflected in recent rig sales at significant discounts to build cost, including Ocean Rig’s purchase of the UDW Drillship Cerrado for $65 million compared with an estimated outlay for the rig originally in the region of $300 million.

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Ultimately, as rigs are stacked and the active worldwide rig count declines, it will make it even harder for the UK to secure rigs in the future in comparison to other basins that may be able to commit to longer contracts.

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Figure 38: Monthly Global Rig Count

3

4,000

3,500

4

3,000

2,500

5

2,000

1,500 Rig Count

1,000

6

500

0

7

Jul-14

Jul-15

Jan-14

Jan-15

Jan-16

Jun-16

Jun-14

Jun-15

Oct-14

Oct-15

Apr-16

Apr-14

Apr-15

Feb-14

Sep-14

Feb-15

Sep-15

Feb-16

Dec-14

Dec-15

Aug-14

Aug-15

Nov-14

Nov-15

Mar-16

Mar-14

Mar-15

May-16

May-14

May-15

Source: Baker Hughes

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Unsurprisingly, some companies in the sector have ceased operations, mostly in the asset heavy drilling side of the wells market, although business failures have been limited in the UK. The bankruptcies of Hercules Offshore, Vantage Drilling and C&J Energy Services represent some of the more notable international cases. The performance of companies manufacturing products within this segment differs significantly depending on their geographical focus. Organisations heavily exposed to the UK or other markets, such as onshore US, where drilling activity has been particularly affected, have typically been hit harder than those well placed in more robust markets such as the Middle East. However, there may be cause for cautious optimism. The world’s two largest providers of oilfield drilling services are suggesting that the North American market may have reached its lowest point in the second quarter of 2016 and is now poised for a return to modest growth 28 .

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10

11

28 See http://bloom.bg/2cFoSgp

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