Rig Utilization Rate

DEFINITION of 'Rig Utilization Rate'

A ratio used in the oil services industry that measures the amount of rigs being used as a total percentage of a company's entire fleet. A company's rig utilization rate often speaks volumes about both a company's current prospects and the global economic landscape as well. Quite often during times of economic deflation or recession, rig utilization rates will be quite low, due to a decreased demand for oil.

BREAKING DOWN 'Rig Utilization Rate'

In most cases, the higher the rig utilization rate, the higher the revenues for a firm. During periods of growth where the demand for oil is high, rig utilization rates often run into the 90th percentile and even up to 100%. It's important to note, however, that companies that have high utlization rates are running at capacity, limiting the company's short-term capabilities to increase production and revenues should demand increase.