Offshore drilling rig demand is expected to improve in the next three years as energy companies return to deepwater exploration and shallow water field redevelopment.
This could lead to a more balanced market for floating rigs – semi-submersibles and drillships – from 2020, according to Wood Mackenzie director for upstream supply chain consulting Dr Wei Liu.
He delivered an update on the international offshore rig market at Riviera Maritime Media’s Annual Offshore Support Journal Conference, Awards and Exhibition in London.
Dr Liu explained how new exploration and development projects will influence demand for offshore drilling rigs over the next three to five years. “There is an upside for the next decade in deepwater exploration and development drilling,” he said in the first session of the conference.
His prediction is based on forecasts of production of conventional oil and unconventional sources, such as shale oil mostly in the US. Dr Liu forecast that shale oil production will peak in the early 2020s, leaving a hole in oil company requirements.
“International oil companies will need to replace production and as unconventional will peak, they will need to look in deep waters,” he explained.
This will benefit operators of deepwater rigs that can drill in water depths of more than 500 m and ultra-deepwater (1,500 m) in the long term. This is particularly the case of the latest (sixth and seventh) generation drilling rigs that were built in the last construction boom of 2012-2015.
These rigs “are in higher demand as older rigs roll-off contract” said Dr Liu. Around 75% of the 26 rigs contracted in Q4 2018 were these generation units.
Day rates for all floating drilling units averaged around US$192,000 in 2018 compared with US$170,000 in 2017 when the market bottomed out.
Dr Liu predicted rising demand for deepwater exploration and development drilling coupled with rig retirements in 2017-2018 is balancing the market.
“We have seen attrition of older rigs, demand is gradually increasing and we do not expect newbuilding orders,” said Dr Liu. He predicted floating rig utilisation will be around 75-79% between 2020-2022 and day rates will remain stable.