While the value of shares in deepwater drilling companies has plunged along with the oil price over the past year (Transocean, Seadrill, Ensco and Diamond are currently priced 56% lower on average compared to January 2014), the actual health of the ultra-deepwater rig sector remains encouragingly healthy.
According to analyst Douglas-Westwood in one of its regular weekly market statements the number of active ultra-deep rigs has remained high, with 171 units contracted compared to 175 units in January last year. Dayrates have also (somewhat surprisingly) increased slightly, from an average of US $470,000 to $485,465 – though this is largely as a result of contracts signed before the fall in oil prices, the analyst points out.
Douglas-Westwood admits that concerns about drilling contractors’ backlogs and their ability to put their most expensive assets to use are “well founded”, with operators announcing decreases in capital expenditure. But according to its offshore drilling forecast there are still plenty of wells to be drilled if the oil price this year manages to average between $50-70/bbl – although some would say that is something of an optimistic outlook.
The requirement for such rigs remains undeniable, however. The number of total wells drilled could increase by 17% by the year 2020, with the number of deepwater wells growing at 32% despite the current price environment, says the analyst.
It goes on to warn, however: “A fundamental issue is not only a lack of demand, but one of the industry’s own making. The recent build cycle has resulted in a sharp growth in supply that will need time to be absorbed by expected long-term growth in demand. Like other subsectors of the offshore marine industry such as offshore vessels and production assets, supply – not just demand – will determine the future direction of the offshore drilling market”.