Daily offshore rig rates are moving up

The offshore sector is emerging from a period of punishingly low rates as demand and investment in the sector recovers.

Longtime investors in the oil services sector have seen share prices rise over the past year. Floater mainstay Transocean (NYSE – “RIG”), which had hovered between $3 and $4/share for much of 2022, jumped to over $7/share in February and March 2023; Jack-up specialist Borr Drilling (NYSE- “BORR”), which had fallen as low as $2/share in mid-2022, rose as high as $8/share in early April 2023.

A webinar hosted by broker BTIG, moderated by veteran oil services analyst Greg Lewis, included a highly informative dialogue with Rystad Energy Lead Offshore Analyst Liz Tysall, who delved deeply into the underlying market dynamics driving these gains.

Lewis set the stage by pointing to the “interesting times” in the business with “…leading daily rates for drillships in the mid/high $400,000 range…”. Discussing the floater segment, Tysall painted a picture of the oil majors driving exploration and production (E&P) activity, with spending about 15% higher in 2023 than in 2022, with more for 2023 activities are expected; Petrobras and Equinor were specifically named as drivers of long-term contracting in the sector.

In the last four or five years, with bankruptcies and reorganizations, there has now been takeover and merger/acquisition activity, along with equipment sales and purchases; the Maersk Drilling/Noble and Seadrill/Aquadrill mergers were cited as specific M and A examples, while en bloc jack-up sales of Seadrill (to Ades) and Noble (to Shelf Drilling) were seen as opportunities for became drills to leave a certain region. “I think there’s still room for one or two more companies to jump on the M and A bandwagon…” Tysall said, adding, “…M&A activity has streamlined the market… and into the situation with the higher daily rates that we have now.”

Looking ahead, the presentation showed a market poised for further upside. Lewis pointed to West Africa and broader South America (Brazil, Guyana) as areas to look for expansion in the floating sector. Looking at Rystad statistics on contracted fixtures versus quantities consumed, Tysall suggested that the data “… bodes well for the industry… it suggests they are contracting their installations… there is enough work to do to raise the prices to support…” For jack-ups, she said, “Last year really tipped the scales – based on the number of tenders that Saudi Aramco… ADNOC and Qatar Energy… did. The contract periods for jack-ups have been longer than those for floaters in recent years.”

In a series of slides looking at rates and utilization, the floater side (semi-submersibles and drillships) sees longer lead times and contract lengths with a committed utilization rate of 85% (where ultra-deepwater units have a utilization rate of 91%). Longer-term deals at higher rates included the deals mentioned, including Noble Faye Kozack, which went to Kosmos Energy for $450,000/day, and Transocean’s Deepwater Asgard and Deepwater Conqueror, which went to Hess and Chevron, respectively, for $440,000/day. Recently, RIG’s Deepwater Invictus went to Murphy Oil for $425,000/day.

The jack-ups data shows an overall 87% load factor, with the premium jack-ups showing an overall 93%. High-end units are now close to seeing $160,000/day after Saudi Aramco (Shelf Drilling Victory) $129,000/day and Eni (on Borr Drillings Prospector 5, for work offshore Congo) $140,000/day had determined). It is worth noting that the number of “orphaned” jack-ups (those remaining in the yards after the market crisis of 2014-2015) increased sharply from 60 units in 2016-2017 to around 20 rigs (or around 14, if any). Units still in shipyards will be considered.

Source: News Network