Transocean sees ‘sustained strength’ in offshore drilling: CEO

Premier global deepwater driller Transocean sees “sustained strength” in offshore drilling as demand tightens for increasingly fewer available high-capability drilling rigs for the foreseeable future, pushing up utilization and day rates, the company’s top executive said Nov. 3.

The global offshore drilling market should continue recovering at a pace with the last several quarters which has gradually increased, although majors have been particularly active this year, company CEO Jeremy Thigpen said in webcast results during his company’s third-quarter earnings conference call.

“Offshore budgets of [major oil and gas companies] have increased for a second consecutive year, and we’re seeing this reflected in tender and contract activity,” Thigpen said. “Importantly, these budgets are increasingly directed to the offshore deepwater.”

“Year to date, majors contracted nearly 31 rig-years on deepwater drillships, versus 20.5 years for jackups,” that operate in shallow waters, he said.

Moreover, day rates for drillships – deepwater floating units – have moved “comfortably” above the $400,000 mark. For example, the rate for one such rig increased by $105,000/d in just 10 months, he added.

Fixtures more than double in two years

While the average drillship fixture in Q3 2020 was $184,000/d, the Q3 2022 average more than doubled to $393,000/d, Thigpen said.

“We had heighted demand for our rigs in the third quarter,” he said.

That was reflected in an incremental $1.6 billion in backlog since July, bringing the total backlog to $7.3 billion, he said, adding that those fixtures come from five separate regions, confirming that the recovery in offshore is “indeed” global.

Also, “we continue to see a steadily increasing number of tenders, in addition to direct negotiation with our customers,” Thigpen added.

Top-quality deepwater rigs are in high demand but increasingly short supply. But it wasn’t always that way.

Years of poor shareholder returns and later, aggressive ESG investment mandates, has led to underinvestment in reserve replacement. It has been increasingly clear to upstream operators that they must not only maintain but grow their production targets, albeit even at single-digit rates.

Production growth has slowed

But many large E&P operators with relatively large production bases are still holding to growth rates of 0 to 5% and continue increasing cash returned to shareholders.

At the same time, demand for oil and gas has and will continue rising, but new production can’t occur without significant investment in additional E&P including offshore drilling, Thigpen said. In fact, millions of barrels a day of additional new oil supply alone will be needed over the next decade to offset depletion and avoid shortfalls.

“This can’t be accomplished without significant investment in additional exploration and production, including in offshore drilling,” he said.
Active utilization in the US Gulf of Mexico is expected to remain effectively 100%, as rig awards will be made for an estimated eight programs in the next 18 months, he added.
Because of limited active supply, Transocean’s upstream customers favor direct negotiations with increasing propensity toward multiyear programs, he said.

“We remain encouraged by the sustained strength in the offshore drilling market globally and expect demand for the increasingly scarce high-capability drilling rigs” to grow, Thigpen said.
Source: Platts