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.

RELATED TERMS
  1. Total Utility

    Total utility is the aggregate level of satisfaction or fulfillment ...
  2. Capacity Utilization Rate

    The capacity utilization rate is a metric used to measure the ...
  3. Dow Jones Utility Average - DJUA

    The Dow Jones Utility Average (DJUA) is a price-weighted average ...
  4. Growth Rates

    Growth rates are the percentage change of a variable within a ...
  5. SEC Form U-3A3-1

    SEC Form U-3A3-1 is an obsolete form previously required to be ...
  6. Plunge Protection Team - PPT

    The plunge protection team is the Working Group on Financial ...
Related Articles
  1. Investing

    A Primer On Offshore Drilling

    Learn the important ratios and terms that you'll need to know to get involved in this trading sector.
  2. 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.
  3. Insights

    The Rise and Fall of Seadrill

    Seadrill Limited was once regarded as one of the hottest offshore drillers—it has since fallen.
  4. Investing

    Will Natural Gas Perform Like Oil? (UNG, XLE)

    Oil is in a bull market. Will natural gas prices follow or are both headed for a near-term correction?
  5. Insights

    Trust In Utilities

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

    The Debt Report: The Utilities Sector

    Discover how blue chip U.S. utilities companies are using debt, and why it was important for the industry to deleverage after the financial crisis.
  7. Investing

    Small Cap Stocks Are Feeling The Burn

    The last 12 months have been a tumultuous time in commodity and energy markets.
  8. Investing

    How Utilities ETFs Deal With Rising Rates

    Utilities stocks and ETFs may be vulnerable to rising interest rates, but there are other factors to consider.
  9. Investing

    3 Oil Companies Losing Money with Current Oil Prices

    Learn about three oil companies that are losing money with low oil prices. See how companies in the sector with high debt loads are facing difficulty.
RELATED FAQS
  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 is the downside of investing in the utility sector?

    Learn about the pros and cons of investing in the utility sector, and determine whether the steady dividend income possibility ... Read Answer >>
  3. Why do utility stocks pay high dividends?

    Learn why utility stocks pay high dividends and how government-produced monopoly protects privileged utility companies from ... Read Answer >>
  4. 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 >>
  5. What price-to-earnings ratio is average in the utilities sector?

    Explore the utilities sector, and discover how it compares to other market sectors when evaluated using the popular price-to-earnings ... Read Answer >>
  6. 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 >>
Trading Center