The global offshore rig market is set to tighten in 2024, with the sector predicted to reach as high as 96% marketed utilisation according to analysis from Westwood Global Energy Group.
Analysis from Westwood Global Energy Group predicts the overall outlook for the offshore rig market to remain “highly optimistic”, with more availability within the first half of 2024.
Even with that expected higher availability, Westwood said an anticipated increase in demand will lead to high marketed utilisation resulting in a limited choice of rigs for new deals.
This could lead to more sublet activity as well as potential delays to planned campaigns if additional rigs are not added to active supply, Westwood said.
While the increase in demand is good news for rig owners, it could further reduce options for North Sea operators already contending with an exodus of oil rigs seeking better prospects elsewhere.
Last year, a North Sea drilling industry body also warned UK renewables projects were at risk if rigs continued to depart the region.
Increased rig availability in early 2024
In addition to the current warm-stacked (available) supply, which includes 27 jackup rigs, three drillships and eight semisubmersibles, there are a further 18 jackups, four drillships and five semisubs set to finish up their current contracts in Q1.
While Westwood said semisub activity is generally quieter in the winter months in the UK and Norway, drillships are “showing more potential availability than has been recorded since September 2021”.
Westwood said it is likely that most, if not all, of these ships are being bid on new opportunities with some likely close to securing new deals.
The Stena Don semisubmersible drilling rig.
Meanwhile in the jackup segment, Westwood the majority of rigs set to become available are in Mexico, the Middle East and Southeast Asia, with several likely to be offered extensions with their current operators.
This spike in rig availability is likely to be a short-term fluctuation according to Westwood, with operators yet to finalise their budgets and drilling plans for 2024.
With operators increasingly tending towards larger and longer term contracts, firms are taking more time to settle on suitable rigs and finalise deals.
According to Westwood, there are a total of 46 projects with a firm duration of two to five years with start dates from 2024 to 2026, with some contracts which could last up to 10 years.
As a result, Westwood said it predicts further growth in demand and utilisation in 2024 with India, Southeast Asia, South America and West Africa all expected to be “important drivers behind further expansion”.
In total, this is forecast to result in demand growth of up to 36 rigs year-on-year and a 3% increase in global marketed utilisation.
Newbuild rigs to remain “highly sought after”
While 2024 will see an increase in demand for rigs, Westwood said it does not expect a wave of new construction orders as drillers “continue to focus on financial prudence”.
However, Westwood said expects further supply will be added through reactivations and newbuild rig deliveries despite a decrease in such deliveries by 64% in 2023 in comparison to 2022.
Newbuilds will remain “highly sought after” in 2024, with companies including Valaris and Borr Drilling having already announced plans to take delivery of newbuild rigs, some of which have been delayed in yards for as long as a decade.
Valaris took delivery of the newbuild drillships Valaris DS-13 and Valaris DS-14 (pictured) in December, 2023.
Westwood said newbuilds and stranded assets will remain in demand “due to their modern and high-tech calibre”, with 16 jackups, five semis and 11 drillships currently in shipyards with no contracts yet in place.
According to Westwood analysis, there are approximately cold-stacked 14 jackups, 12 drillships and 12 semis which could also be looked at as reactivation candidates.
However, inflation and supply chain constraints have increased the time and costs associated with reactivating rigs, meaning these options are “not an easy or quick fix for supply concerns”.
Increased day rates
2023 brought an increase in dayrates for jackups, semisubs and drillships, with some floating rig types reaching rates at or above $500,000 per day.
While Westwood analyst Teresa Wilkie said these market leading rates are a “positive sign”, particularly for rig owners and managers that have grappled with low dayrates since 2014, they are unlikely to be the norm for long-term contracts starting in 2024.
“Ultimately, with the ever-tightening supply/demand balance, costly reactivation and new construction economics as well as inflationary pressures, Westwood expects dayrates to continue their northward trajectory in 2024 across the board,” Ms Wilkie said.
“With that in mind, we predict that operators will continue locking in rigs earlier for their contracts in a bid to secure the right assets at as low a price as possible.”