HOUSTON – The global exploration for deepwater oil and gas fields continues unabated, despite recent economic turmoil and concerns about where energy prices might go, according to Dow Jones.
In 2Q, offshore drilling contractors posted higher-than-expected earnings, as oil and gas producers scrambled to hire expensive, specialized drilling rigs, and signaled that strong demand for their wares is poised to continue.
This boom comes just over two years after the Deepwater Horizon explosion in the U.S. Gulf of Mexico and the subsequent moratorium on deepwater drilling. Now, analysts note that renascent activity in the U.S. Gulf is a major driver of growth, as is the emergence of new global offshore areas.
"The strength of the deepwater market has really stood out," said Dahlman Rose analyst James Crandell, pointing to an accelerating return to U.S. Gulf of Mexico, Brazil, and East and West Africa as major deepwater markets.
The strength in the deepwater drilling market underscores the strategic importance of deepwater reservoirs to international oil companies, even though last quarter's fall in oil prices due to fears about a global economic slowdown gave some energy companies pause. Prices have recovered somewhat, but economic uncertainty continues.
Drilling contractors have also been able to raise prices when signing new or extending contracts. Diamond Offshore Drilling Inc.’s Ocean Vanguard will continue to drill in the North Sea for Statoil at a day rate of $450,000, up from the current rate of $352,000.
Contracts are becoming not only more expensive, but longer, said Barclays analyst James West. Now announced contracts tend to last several years, whereas in the recent past, eight to 10 months were typical. In the Gulf, longer contracts allow more downtime needed in order to clear new permitting and regulatory hurdles imposed after the Deepwater Horizon oil spill.
The recent increase of high-value, long-term contracts point to a coming "battle to secure ultra-deepwater availability," West said.
Activity in the U.S. Gulf is nearly back to levels seen before the Deepwater Horizon disaster, analysts said. The Bureau of Safety and Environmental Enforcement has approved 113 new deepwater wells and 142 new shallow wells in the Gulf since new regulations went into effect.