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The revitalization in offshore activity is good news across the service industry segments, but drillers especially have reason to be mildly optimistic. After the oil price collapsed in 2014, players across the oil and gas industry felt the pain, but the drilling contractor segment was hit the hardest, as purchases dropped by more than 60%. With more stable oil prices and a renewed interest in project sanctioning, the drilling segment is slowly regaining ground, and floaters will attract the most spend.
Offshore purchases across all segments dropped to rock bottom in 2018when spending totaled $191 billion, compared to peak spending of $352 billion in 2014 (Figure 1). Drilling has been following the same trend. Spending in 2019 on floaters is set to increase by nearly 30% compared to the industry low seen in 2018, and spending on jack-ups and barges will increase more than 7%. The relative spending ‘spree’ will not cross over to platform drilling services and land rigs, which are set to continue their decline, though on a less severe course than previously.
When we speak of drilling contractors or offshore drillers, we typically refer to the owners of mobile offshore drilling units (MODUs) and the two separate markets it includes: (1) the shallow water jack-up market, and (2) the mid- and deepwater floater market which consists of semisubmersibles and drill ships. Since 2010, about 71 % of the offshore wells have been drilled by either a jack-up (51 %) or a floater (20 %), while the remainder (29%) were drilled from a fixed platform, barge or other drilling facilities.
After a successful year in 2018 for major E&Ps, the now cash-flush exploration and production companies are expected to increase their spending on mobile offshore drillers. The floater segment, in particular, is where we anticipate the most rapid growth and this is driven by a new wave of greenfield (development) projects in deeper waters. As oil prices have improved over the last two years, more projects have turned economical, leading to an elevated workload for offshore drillers. However, in order to achieve a comeback, the upcoming development projects need to be sanctioned. Following significant cost reductions and lower project breakevens over the past years, almost all projects are now economical at an oil price of $60 per barrel.This is a good place to be if you expect the oil price to stay in the range of $60 to $70 per barrel going forward.
Growth of the floater market is driven by an increased share of activity in the ultra-deepwater and harsh environment regions going forward. Based on our bottom-up approach where we track activity asset-by-asset, we see activity picking up significantly up until 2021, where we foresee demand of 172 units.
Figure 2 shows that floater demand growth will be driven by projects in the North Sea (both in Norway and the UK), the US Gulf of Mexico, West Africa and Brazil. The harsh environment Norwegian Continental Shelf (NCS) is in particular lifting demand short-term, especially with ramping up in drilling at Johan Sverdrup (phase 2) and Johan Castberg, as well as more than 10 lower cost subsea-tieback projects. In the medium term, we await an FPSO boom in the ultra-deep waters of Brazil, with the Petrobras operated Mero project generating the highest rig demand.
The comeback is expressed by smaller subsea-tieback projects and phased development projects which in turn leads to shorter contracts for drillers. Operators are required to pay more in order to secure long time contracts as drilling contractors do not want to be locked in long term contracts at low rates when the market rates improve again. Several high-end sixth and seventh generation drillships have received long-term contracts since the third quarter of 2018 and rigs in this segment are expected to be close to fully utilized in the coming years. As of May 2019, not only the sixth and seventh generation drillships but floaters, in general, are seeing more rigs on contract this year in comparison to last year’s total.
Source: Rystad Energy
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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