Global offshore drilling activity edged up in week 44 2020, showing gains in both the deep water and shallow water markets. Overall, there were 324 offshore jack-ups and 106 floaters contracted for the week, according to leading energy analyst Westwood Global Energy
Covid concerns continue to weigh on the minds of traders. Brent crude oil closed at US$40.70 per barrel on 27 October, down 4.8% week-on-week from US$42.77.
Westwood Global Energy’s RigLogix reported the number of global floaters – semi-submersibles, drill ships and other MODUs, inching up to 106 units – a rise of one unit week-on-week.
While the number of floaters active in the North Sea slipped by one unit from 20 to 19 week-on-week, Wintershall Dea reported it had begun drilling the first of six wells on the Nova field in the Norwegian North Sea.
Located about 120 km northwest of Bergen and about 17 km southwest of the Gjøa platform in the Norwegian North Sea, Nova is being developed by Wintershall Dea as operator with a 45% stake, Spirit Energy Norge (20%), Edison Norge (15%), Sval Energi (10%) and ONE-Dyas Norge (10%).
Wintershall Dea reported that most of the subsea work was complete and a dedicated module installed on the host platform, Gjøa. The start of drilling “marks the start of the last phase for the Nova project,” said Wintershall Dea Nova project director André Hesse.
Scheduled to be on site for around 400 days, Seadrill’s West Mira rig will drill three production wells through one of two subsea templates, and three water injection wells through the second.
The Seadrill-operated West Mira rig has been equipped with an energy-saving hybrid battery power plant, lowering emissions. As a subsea tie-back to existing platform Gjøa, the Nova field also sustainably benefits from in-place infrastructure, with no need for a major new facility.
When it comes on stream in 2022, Nova will be the company’s fourth subsea field in production. First oil is unlikely in 2021, as earlier forecast, due to the impact of Covid-19 on the topside part of the project.
Meanwhile, the Brazilian offshore oil market may be staging a recovery, said leading Norwegian energy analyst Rystad Energy. In its October report, Rystad Energy said “Brazil is poised to once again become a key region for benign deepwater drilling. Guyana and Suriname are both showing improvement.
“The Covid-19 outbreak and the oil price crash this year reduced global floater demand by more than 30 rigs since February,” said Rystad, “and total utilisation dropped down to 46% (57% marketed utilisation) with some markets more affected than others. Brazil is one of the few markets experiencing an increase in rig demand.”
While rig demand remains depressed in West Africa and the US Gulf of Mexico, “activity in Brazil has remained stable, helped by the fact that breakeven prices for projects there have fallen and most of the activity for 2020 and 2021 is already locked in through firm rig contracts signed before the pandemic.”
Increased rig scrapping key
Critical for the sector as a whole is increased scrapping of rigs, particularly those that have remained cold stacked and would be expensive to reactivate. Rystad Energy said that increased scrapping of rigs can “set the stage for a comeback in utilisation and play a key role as the offshore drilling industry seeks to shore up its finances. This is a course of action that could ultimately lead to increased pricing power on the driller side, eventually helping the global floater fleet to get back on track.”
It is no secret that offshore drilling contractors have been hit hard by the downturn in the sector, with several filing for Chapter 11 reorganisation.
Rystad projects that the rigs that were cold stacked relatively early on during the previous downturn will now be some of the first rigs to be retired in this downturn.
“Rig owners have been waiting for a recovery that never really materialised – there are 18 units that have remained cold stacked since 2016.” Reactivating these units will be expensive; Rystad estimates costs ranging between US$20M and US$35M for a rig that has been warm-stacked for a relatively short period of time, to between US$40M and US$100M for rigs that have been cold-stacked for longer periods. “Given current rates and contract durations, it is unlikely most of these cold-stacked units will ever return to work,” said Rystad.
Based on several factors, including how long a rig has been idle and the timing of its next special periodic survey, Rystad Energy estimates that as many as 62 floaters could be retired by 2023.