The global offshore drilling market is continuing to experience a significant rebound with rig utilization now returning pre-pandemic levels, leading to a 40% increase in rates over the past year, according to a recent report from Wood Mackenzie, a leading energy research and consultancy firm. The report also forecasts a further 20% surge in demand from 2024 to 2025.
This surge has propelled day rates towards the $500,000 per day mark for the most advanced rigs in the ultra-deepwater segment.
Wood Mackenzie’s report, titled “Are we at the tipping point of the deepwater rig market?”, highlights the rebound of active floater utilization in recent years, which has risen from a low of 65% in 2018 to over 85% in 2023. Furthermore, the number of contracted ultra-deepwater (UDW) benign rigs (i.e. non-harsh environment) has returned to pre-COVID levels, while day rates for top-tier floaters have doubled over the past two years.
Rising oil prices over the past year has acted as a catalyst for a rebound in the offshore oil and gas market following a prolonged 8-year industry downturn.
“Higher oil prices, the focus on energy security, and deepwater’s emissions advantages have supported deepwater development and, to some extent, boosted exploration,” said Leslie Cook, principal analyst for Wood Mackenzie. “Active supply is now more in line with demand, and rig cash flows are positive. We expect demand to continue to rise.”
Wood Mackenzie’s projections indicate that a significant portion of this expected demand growth will come from the so-called “Golden Triangle” regions, comprising Latin America, North America and Africa, and parts of the Mediterranean. These areas are expected to account for 75% of global floating rig demand through 2027.
The recent surge in activity has already led to a 40% increase in rates over the past year, and Wood Mackenzie anticipates an additional 18% escalation for floater day rates. The report suggests that highly sought-after ultra-deepwater rigs may reach rates of $500,000 per day or even higher before the end of the year. Benign ultra-deepwater rigs have maintained an average daily rate of $420,000 in the first half of 2023, with utilization rates reaching an impressive 90%.
“With increasing demand and rates, we are approaching the tipping point for new builds and reactivations,” said Cook. “We haven’t reached it yet, but for new builds, it’s not a question of if, but when. The need for decarbonization, technological advancement, more efficiency, and ultimately fleet replacement will drive a new cycle. If rig economics remain robust and rig companies see contractual risks abate, this could be sooner rather than later.”
Sign up for our newsletter