Drilling market witnessing regional improvement

The offshore drilling market is slowing emerging from the downturn, driven by oil price stability and improving project economics. While the overall count of working rigs – one indicator of market health – has not improved much in recent years, some areas are witnessing increasing demand.

David Paganie • Houston

The offshore drilling market is slowing emerging from the downturn, driven by oil price stability and improving project economics. While the overall count of working rigs – one indicator of market health – has not improved much in recent years, some areas are witnessing increasing demand.

Drilling activity has been trending up in European offshore areas, namely off Norway and the UK North Sea. The market for high-spec floaters in the region is tightening, which has led to a boost in day rates. One beneficiary is Transocean. The drilling contractor has been high-grading its fleet, through asset retirements, upgrades, and acquisitions, to focus on the harsh-environment and ultra-deepwater markets. The company is also taking steps to improve its profitability by entering into what it calls “OEM health care agreements,” which use predictive analytics to lower maintenance costs and reduce downtime by shifting its original equipment manufacturer from a calendar-based to an as-needed schedule. The drilling contractor is optimistic that demand for high-spec floaters will continue in Europe, and then possibly increase in the ultra-deepwater markets, specifically Brazil, beginning later this year and into 2019. Recently, Jeremy Thigpen, CEO of Transocean Ltd., met with Bruce Beaubouef, Offshore managing editor, to offer his views on the state of the offshore drilling market. The interview begins on page 14.

One of the improving ultra-deepwater markets is offshore Brazil. International investors are aggressively seeking a foothold in the country’s offshore acreage as the government continues its reforms of the country’s energy sector and offshore licensing system. In April 2017, the Brazilian federal government decided that local content would no longer constitute a specific component of the bidding process. Instead, offers would be composed of only a signature bonus (80%) and a minimum exploratory program (20%). In addition, the local content requirements were reduced by 50% on average for the upcoming bidding rounds. Meanwhile, the Brazilian Petroleum Agency (ANP) published a resolution earlier this year that would allow companies to request an amendment of its local content requirements from previous bid rounds. The deadline for interested companies to submit their requests to ANP is Aug. 10, 2018.

Beginning on page 22, attorneys with Tauil & Chequer Advogados, in association with Mayer Brown, offer a comprehensive update of the energy reforms in Brazil and Mexico.

Based on current investment plans, the ANP expects 39 new platforms to be installed on Brazil’s presalt fields by 2027, lifting production to 5 MMboe/d by 2027, with associated investment costs of BRL850 billion ($226 billion).

The long-term outlook is also promising, with 22 offshore blocks across various basins offered to 12 different companies in the country’s 15th bid round last March; three blocks awarded to consortia led by Petrobras under the country’s 4th presalt bid round in June; and a 5th presalt bid round to follow potentially in September, with reserves of up to 16.5 Bbbl on offer. The areas to be offered in this round include Pau-Brasil, Saturno, Sudoeste de Tartaruga Verde, and Tita in the Campos and Santos basins. For more on Brazil’s offshore market outlook, see page 20 for a report by Jeremy Beckman, Offshore Editor-Europe.

Meanwhile, new rigs have been ordered this year – another positive sign for the drilling market. Three orders had been placed this year as of the time of this writing, two by the Rowan-Saudi Aramco joint venture ARO Drilling, and one by Awilco Drilling. This follows zero rig orders in 2016 and 2017, and only four in 2015. While it is unlikely that many more orders will be placed over the remainder of 2018, the coming years should see a modest uptick as operators slowly boost offshore activity and demand newer units, says Justin Smith with IHS Markit Petrodata. Justin’s offshore rig construction market outlook with accompanying survey begins on page 30.

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