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.

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