Amidst a global recovery in the oil and gas sector, Wood Mackenzie’s recent report titled “Are We at the Inflection Point of the Deepwater Rig Market?” highlighted the upswing in the offshore drilling market. The pandemic caused rig utilization to decline, but the current rebound has helped daily rates for ultra-deepwater rigs reach around $500,000, thanks to soaring oil prices. Wood Mackenzie predicts a further 20% increase in demand between 2024 and 2025.
Wood Mackenzie’s report mentions that the rebound in the active floater usage, with an increase from 65% in 2018 to over 85% in 2023, along with the number of ultra-deepwater rigs that experience mild environmental conditions under contract, has propelled the market to pre-COVID-19 levels. Notably, daily rates for prime floaters have doubled to $500,000 over the previous two years. This recovery is fuelling exploration and development, and the demand is expected to increase rapidly.
Latin America, North America, Africa and parts of the Mediterranean, dubbed the “Golden Triangle” regions, are set to account for 75% of global demand for floating rigs by 2027. To further meet this potential demand, new builds or reactivations are being planned, with ultra-deepwater rigs likely to hit the $500,000-a-day price point, if rig economics continue to remain robust and drilling companies see contractual risks easing. Wood Mackenzie predicts an additional 18% increase overnight floater rates rise.
The report highlights some factors that will drive a new cycle, including decarbonisation, technological advances, and fleet replacement. Wood Mackenzie principal analyst Leslie Cook expressed that the demand projections have led the industry towards an approaching tipping point for new builds and reactivations. However, the question remains not if but when it will occur.
In conclusion, the market has seen a remarkable shift in the past year, with rig utilization on the rise, leading to higher demand and rates. It remains to be seen when the market will reach the tipping point for new builds and reactivations. The industry, however, is prepared to seize the opportunity to meet the predicted demand in the future.
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