What’s happening with Offshore?

Switching over to our offshore theme, after a volatile first few months of 2024 where the market was spooked by the Saudi jack-up announcement and the slower cadence of deepwater contract announcements, the offshore drillers pointed to the fundamentals they’re seeing being as strong as ever.

Dayrates and term lengths continue their steady march higher and the drillers highlight multiple geographies that continue to heat up and will likely require incremental rigs. Brazil and West Africa are seen as two of the top areas ready to pull in additional rigs over the next few years, while areas like India and even South Korea show potential for their gas demand.

Offshore Brazil has accumulated a fleet that rivals most navies, with 31 rigs currently in the region. Transocean believes Brazil could increase to 36 floaters through 2025 with the most recent Petrobras update suggesting Brazil could require an additional 30 rigs for its 2030 requirements.

West Africa is starting to heat up, with majors like Exxon and Shell launching tenders for offshore Nigeria. IOC’s continue to invest in West Africa, spurred on by the recent discoveries and the activity around Namibia, Angola and Nigeria.

Norway is finally sold out in the North Sea, showing how the upcycle across the globe can leave regions short rigs if they’re too slow or unprepared to contract. Equinor got caught up in the “Peak Oil Demand” mantra over the past few years and even let go of some contracts and options they had in hand. Now, as Equinor comes back into the market looking for rigs, they’re finding that the rigs they expected to be there are getting work in Australia.

Lastly, two recent contracts caught our attention and seem to point to the importance of the offshore drillers eating up white space. First, Seadrill announced a 40-day contract in South Korea where the customer will be paying $22m to use the rig and an additional $10m just to mobilize the rig, implying a clean rate of ~$550k/day. Second, Diamond Offshore announced that its BlackRhino rig secured a 30-day extension for one well that adds another $18m to the backlog (although, some of that is presumably for additional services/mobilization with DO saying dayrate was high-$400ks).

These contracts, and the insane customer spend just to bring rigs into regions, point to the importance in eating up whitespace and how it improves the rest of the fleet’s prospects. In a market with a handful of rigs warm, but on the sideline, we doubt these short-term contracts would have been signed, hence drillers are usually on the hook for taking worse rates just to keep rigs working. But when the supply/demand shifts and oil companies see that some of the rigs they want have a month or two of availability before they move onto a multi-year contract, they’re prepared to move fast and pay up to get the job done.

The offshore market really gets kicking when this mentality spreads to longer-term contracts, but we’re pleased to see it creeping in and shoring up the shorter-term rates.