At last week’s World Economic Forum gathering in Davos, several speakers had harsh words for the oil and gas industry, including UN head Antonio Guterres and the IEA’s chief Fatih Birol. Their message was clear: we need to stop producing oil and gas to solve the climate problem.
While this was happening, however, the world continued to need energy, and oil and gas continued to be the optimal form of energy for most of the things we need energy for. So, with demand forecast—including by the IEA—to surge this year above the growth rate of supply, new drilling is flourishing. Especially offshore.
In December last year, Oilprice reported that the stocks of offshore drilling contractors such as Transocean, Valaris, and Noble Corp were skyrocketing amid robust demand for their services, with day rates for drilling rigs surging as well.
Now, the Wall Street Journal is reporting that rates could top $500,000 per day, up from about $400,000 at the moment, with offshore drilling picking up everywhere as demand shows no signs it is about to start declining, no matter what apocalyptic visions climate speakers try to paint.
“Over the past year and a half, everyone started drilling again offshore, and they want to use the most efficient rigs and all of a sudden, bam!” Noble Corp chief executive Robert Eifler told the Wall Street Journal. “After eight years we basically have full utilization of the high-end drillship fleet.”
A roundup of the biggest deals signed in the offshore drilling industry last year reinforces the perception of a strong revival. The biggest deal was QatarEnergy’s contract with McDermott for expanding the production capacity at the North Field, which McDermott said is one of the largest single deals in its history.
Qatar was also involved in the second-largest offshore deal for 2022, with Italy’s Saipem, again for the North Field, which is understandable as the Qatari government plans to boost the country’s LNG production capacity from 77 million tons annually to 110 million tons. That means there will be a lot of work for offshore drilling contractors.
Adnoc is also boosting its production capacity with the help of Schlumberger and Halliburton, which got two contracts with the Emirati major last year worth some $4 billion. The same is true for Aramco, which has announced plans to increase its oil production capacity by 1 million barrels daily to a total of 13 million. According to Evercore, most of Saudi Arabia’s—and the UAE’s—new capacity will come from offshore developments.
Norway is also eyeing strong expansion of its oil and gas drilling, all of which takes place offshore, despite previous government pledges for a gradual reduction in oil and gas production and a shift towards renewable energy. Earlier this month, Norway’s petroleum ministry awarded 47 new exploration licenses to 25 companies.
Offshore drilling is booming in Brazil, Guyana, and Suriname as well, per the Wall Street Journal. Brazil’s Petrobras said it will boost spending between 2023 and 2027, with most of the money going into exploration and production. Guyana is enjoying the results of a string of offshore discoveries that have boosted the tiny nation’s oil exports by 164 percent in 2022, with revenues hitting $1.1 billion. Suriname is seemingly on Guyana’s path to oil riches, although it is meeting some challenges.
Analyst expectations about the offshore drilling market appear to be upbeat. Oil prices are higher than they were in 2019, oil demand is strong, and offshore drilling contractors are turning a nice profit. Deepwater drilling is particularly attractive since that’s where most of the world’s untapped oil resources are.
According to data from Westwood Global Energy Group, some 90 percent of the world’s offshore rigs were contracted to work or were already working as of last December. That’s up from about 60 percent five years earlier, the WSJ noted in its report.
This surge in demand for offshore drilling, especially in deep waters, has also revived demand for drillships that were put offline during the pandemic and the industry downturn it caused. Drillships cost about $100 million to put back online, and owners are demanding most of the money upfront.
And their clients are paying it: the WSJ notes a deal between Valaris and Equinor for a drillship that was sent to drill in the deep waters offshore Brazil. Of the total value of the deal—$327 million—$86 million was paid upfront, including for the reactivation of the vessel.
So, despite increasingly loud calls for what effectively amounts to shutting down the oil and gas industry, the real world is demanding more oil and gas, and the industry is delivering. From the shores of Brazil to the North Sea and the Persian Gulf, drilling contractors are putting up rigs to pump more oil and gas from underneath the seabed. Analysts are calling it a supercycle.
By Irina Slav for Oilprice.com
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