DEFINITION of 'Rig Utilization Rate'

The rig utilization rate describes the number of oil drilling rigs being used by a company as a percentage of a company's total fleet. A company's rig utilization rate often speaks volumes about both the company's prospects and the global economic landscape. Quite often during times of economic recession, rig utilization rates will be quite low due to a decreased demand for oil.

BREAKING DOWN 'Rig Utilization Rate'

Along with other metrics, the rig count and the utilization rate are reported in business and trade publications to describe the state of the industry. Rig utilization rates may be reported by type of rig (e.g., ultra-deepwater submersible, ultra-deepwater drillship) as well as by region (e.g., Gulf of Mexico, North Atlantic).

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 at 90% or higher — sometimes to 100%.

Activity in the oil and gas industry is measured not just by the rig utilization rate. Rigs are required to drill for oil and gas, so the raw number of rigs in the field — the rig count — is an important indicator as well. A high rig utilization rate may signal a need for more rigs in the field, assuming demand remains strong.

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

  1. Price Rigging

    Price rigging is an illegal action that occurs when parties conspire ...
  2. Day Rate (Oil Drilling)

    Day rate is the amount a drilling contractor gets paid by the ...
  3. Topside

    Topside refers to the above-water portions of an offshore oil ...
  4. Electric Utilities Industry ETF

    A utilities industry ETF is an exchange-traded fund that invests ...
  5. Utility

    Utility is an economic term referring to the total satisfaction ...
  6. Capacity Utilization Rate

    The capacity utilization rate is a metric used to measure the ...
Related Articles
  1. Investing

    Now’s The Time To Buy The Land Drillers

    As both natural gas and oil drilling activity continues to increase onshore, the land drillers will benefit. For investors, the firms doing the heavy lifting continue to see rising rig counts ...
  2. Investing

    Understanding Oil Industry Terminology

    The drillers are just one aspect of the oil & gas industry, and by knowing some details of their role, you'll be better suited to make investment decisions.
  3. Insights

    An Overview of Deepwater Drillers

    With oil on the up again, it’s a good time to take a look at deepwater drillers.
  4. Investing

    Why Seadrill's Dividend Reinstatement Is Unlikely

    Learn why Seadrill suspended its dividend payments in the latter part of 2014, and how lower crude oil prices could hurt the company's future prospects.
  5. Insights

    Trust In Utilities

    Even in times of economic turmoil, utilities can be a good investment.
  6. Investing

    What a $20 USD Barrel Means For the US Oil Industry

    Read about Goldman Sachs' prediction that oil prices could go as low as $20 a barrel. Understand how low prices impact companies in the U.S. oil sector.
  7. Investing

    U.S. Oil Production Stymies OPEC Moves

    Oil ETFs are falling thanks to new signs that OPEC's price manipulations may be harder to implement.
  8. Financial Advisor

    The Biggest Risks of Investing in Seadrill Stock (SDRL)

    Learn about some of the major risks of investing in Seadrill. Discover why the company is at risk for lower revenues due to falling prices for oil.
  9. Investing

    Seadrill vs. Transocean: How Long Can They Survive Low Oil Prices?

    Deep sea oil companies Transocean and Seadrill are facing questions of long-term viability.
  10. Investing

    Small Cap Stocks Are Feeling The Burn

    The last 12 months have been a tumultuous time in commodity and energy markets.
  1. What is a utility stock?

    Investing in difficult economic conditions requires knowledge of different stock classes. Utility stocks are one vehicle ... Read Answer >>
  2. What are the different ways that utility is measured in economics?

    Learn about the two methods used to measure the concept of utility and how utility influences other economic models of consumer ... Read Answer >>
  3. What is the difference between marginal utility and marginal benefit?

    Learn more about the different interpretations, uses, and implications of marginal benefit and marginal utility in economic ... Read Answer >>
  4. What is the utility function and how is it calculated?

    Economists measure utility in revealed preferences by observing consumer choices and ordering consumption baskets from least ... Read Answer >>
  5. What is the average profit margin for a utility company?

    Learn the average profit margin in the utilities sector and why standard supply and demand forces are limited among energy ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center