Offshore oil and gas market approaching tipping point for drilling rig newbuilding

Rig utilisation has returned to pre-Covid levels, pushing dayrates up by 40% in the past year, while demand is forecast to increase another 20% percent from 2024-2025, according to consultants Wood Mackenzie.

“With increasing demand and rates, we are approaching the tipping point for newbuilds and reactivations,” said Leslie Cook, principal analyst for WoodMac.

“We haven’t reached it yet, but for newbuilds, it’s not a question of if, but when.

“The need for decarbonisation, technological advancement, more efficiency and, ultimately, fleet replacement will drive a new cycle. If rig economics remain robust and rig companies see contractual risks abate, this could be sooner rather than later.”

According to WoodMac’s recent report “Are we at the tipping point of the deep-water rig market?” active floater utilisation has rebounded from a low of 65% in 2018 to more than 85% in 2023, the number of contracted ultra-deepwater benign rigs has returned to pre-Covid levels and dayrates for best-in-class floaters have doubled in the past two years.

“Higher oil prices, the focus on energy security and deep-water’s emissions advantages have supported deep-water development and, to some extent, boosted exploration,” added Cook.

Article continues below the advert

“Active supply is now more in line with demand and rig cash flows are positive. We expect demand to continue to rise.”

Much of this expected growth will come from the so-called Golden Triangle of Latin America, North America and Africa, as well as parts of the Mediterranean. WoodMac forecasts these areas will account for 75% of global floating rig demand through 2027.

Dayrates of $500,000 or above

Recent activity has pushed dayrates up 40% in the past 12 months and the consultant anticipates a further 18% escalation for floater dayrates.

Before year-end, dayrates of $500,000 or above may return for highly prized, advantaged ultra-deepwater rigs. Dayrates for benign ultra-deepwater rigs have averaged $420,000/day in the first half of 2023, with utilisation at 90%.

As Upstream reported earlier this year, speculation has been growing about when the long-running drilling rig newbuilding drought might come to an end.

The last jack-up orders were placed over three years ago in January 2020 by Saudi Aramco at International Maritime Industries. Those units were themselves the first jack-ups ordered since 2016, Clarksons adds.

The last semi-submersible order was booked by Awilco Drilling at Keppel Fels in March 2019. The only drillship deal since 2014 was an all-Chinese affair in September 2020 when GMGS ordered a single unit at Huangpu Wenchong Shipbuilding.

Now there are signs the market is regaining confidence with rates rising as drilling asset availability tightens.

Last week Seadrill CEO Simon Johnson said the company expected to resume dividend payments in the next couple of years as money flows in.

From late 2024 and into early 2025 “we’ll be generating a wall of cash, the logical route is to return that to shareholders, so capital return in the near to midterm is a priority”, Johnson said at the Marine Money Ship & Offshore Finance Forum in Oslo.