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. Price Rigging

    Price rigging is an illegal action that occurs when parties conspire ...
  2. Utilities Sector

    The utilities sector encompasses stocks from electric, gas, water ...
  3. Capacity Utilization Rate

    A metric used to measure the rate at which potential output levels ...
  4. Utility

    Utility is an economic term referring to the total satisfaction ...
  5. Electric Utilities Industry ETF

    An exchange-traded fund that invests in companies which generate ...
  6. Utility Revenue Bond

    A utility revenue bond is a debt security which is designed to ...
Related Articles
  1. Investing

    1 Worry Seadrill Doesn't Have but Transocean Does (RIG, SDRL)

    Seadrill (NYSE: SDRL) certainly has its share of problems. However, the age of its drilling fleet isn't one of them, as it has one of the youngest, most modern fleets. Because of this, it doesn't ...
  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. 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.
  4. Financial Advisor

    Who Are Seadrill’s Main Competitors?

    Learn about some of the issues facing Seadrill and its competitors in the offshore oil drilling industry due to low commodity prices.
  5. Investing

    ETF Flows: Utilities ETFs Stand Tall in 2016

    Find out which utilities exchange-traded funds (ETFs) have benefited the most from the huge surge in fund inflows in the early part of 2016.
  6. 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.
  7. 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?
  8. Investing

    Small Cap Stocks Are Feeling The Burn

    The last 12 months have been a tumultuous time in commodity and energy markets.
RELATED FAQS
  1. What are the main factors that drive share prices in the utilities sector?

    Learn why the share prices of companies in the utility sector have sensitivity to interest rates and to changes in the amount ... Read Answer >>
  2. What is a utility stock?

    Investing in difficult economic conditions requires knowledge of different stock classes. Utility stocks are one vehicle ... Read Answer >>
  3. What is the average annual growth rate of the utilities sector?

    Learn about the average annual growth rate for utilities companies' revenues and earnings per share over the last five years ... Read Answer >>
  4. How does the risk of investing in the utilities sector compare to the broader market?

    Learn about the risks of investing in the utilities sector compared to the broader market. Utilities are less exposed to ... Read Answer >>
  5. What are the most common metrics for evaluating utilities?

    Read about the most common and important methods of evaluating the stocks of utility companies, and learn why regulation ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center