Drilling rig contractors cast hopeful eye toward 2021

Sept. 1, 2020
Drilling rig contractors are projecting a modest pickup in drilling activity toward the middle of next year, according to several online reports.

Drilling rig contractors are projecting a modest pickup in drilling activity toward the middle of next year, according to several online reports. The trick, of course, will be in managing to survive until then.

In July and August, Noble Corp. and then Valaris announced that they had filed for Chapter 11 bankruptcy. That makes three drilling rig contractors that have filed bankruptcy this year, with Diamond Offshore having announced their filing in April. But contracting activity is expected to revive in mid-2021 as projects that were put on hold due to COVID-19 return to the market.

In a recent market update, Seadrill commented that as the global supply of rigs continues to outstrip demand, utilization levels and day rates across all segments will likely remain suppressed. The company added there will likely be further reductions in utilization over the coming months due to lack of near-term demand, the impact of contract terminations, and renegotiation of existing contracts. But there may also be a move toward market rationalization as older and long-term stacked rigs are scrapped.

Seadrill said that at the end of the second quarter, it had five floating drilling rigs in operation. The drillship West Neptune remained under contract with LLOG in the Gulf of Mexico, while the drillship West Tellus was contracted to Petrobras offshore Brazil.

In the Norwegian North Sea, the semisubmersible West Hercules continues to work for Equinor with the semi West Phoenix working for Neptune Energy. Elsewhere, the drillship West Carina is on assignment with PTTEP offshore Malaysia.

Seven Seadrill jackups were operating at the end of 2Q, five in the Middle East and two (both harsh-environment jackups) in Norwegian waters. The West Castor and West Telesto are on bareboat charter to the company’s GulfDrill joint venture in Qatar.

During the second quarter Seadrill said it negotiated discounts with Equinor for the remaining firm term of the West Hercules contract (an estimated $8 million). It later signed an amendment equivalent to $10 million worth of discounts with Saudi Aramco on the AOD IIIIII, and West Callisto across 2020 and 2021.In addition, the company received a notice of suspension from Aramco for the AOD II for up to 12 months.

Seadrill says that it continues to assess the impact of COVID-19 and is braced for a prolonged period of low demand, with currently depressed levels of offshore activity likely to continue into 2021. But the company added that contracting activity should revive in the middle of next year, as projects that were put on hold due to COVID-19 return to the market.

In a similar vein, Maersk Drilling reported that it expects only limited contracting activity for the remainder of 2020; but added that demand for campaigns in 2021 is building, partly due to the rescheduling of projects. The company said that there will be opportunities in the North Sea jackup market and in the international floater sector for contract terms ranging from one-well to multiple years.

Offshore Norway, the temporary tax relief scheme approved by the parliament in June should lead to certain new projects being fast-tracked, creating additional demand for harsh environment jackups, benefiting Maersk’s CJ70 design rigs in particular.

As for the global fleet situation, various rigs, mainly floaters, were scrapped during 2Q 2020, but Maersk sees a need for further scrapping to rebalance the market.

Over the past few years, oil and gas companies have typically favored long-duration contracts. But for floaters currently, one-, two-, and three-year forward contract coverage levels are said to be low compared to 2014-2015.

Meanwhile, contractors are reporting that work is ongoing on several fronts.

Odfjell Drilling’s semisubmersible Deepsea Stavanger has spudded Luiperd-1X, the second exploratory well on deepwater block 11B/12B offshore South Africa. Total operates the block in the Outeniqua basin, 175 km (109 mi) from the country’s southern coast.

According to partner Africa Energy, Luiperd-1X is being drilled in 1,795 m (5,890 ft) of water by to a TD of 3,550 m (11,647 ft) subsea on the eastern area of the Paddavissie Fairway as a follow-up to the Brulpadda gas-condensate/light oil discovery of February 2019. If successful, a drillstem test will follow.

The well will test oil and gas potential in a mid-Cretaceous deep marine sequence where fan sandstone systems are developed within combined stratigraphic/structural closure.

All operations are expected to be completed during 4Q.

Elsewhere, Masirah Oil should start drilling the Yumna 2 well on block 50 offshore Oman early next year, according to majority owner Rex International Holding. Rex executive chairman Dan Brostrom said the company also planned to drill an exploratory well on another prospect on the concession during 2021.

Last month the Ministry of Oil and Gas in Oman approved the development plan for the Yumna field and awarded a declaration of commerciality, enabling Masirah to proceed with the full-field development.

The biggest news of August came from Turkish state oil company TPAO, which reported the discovery of a potentially giant gas field in the deepwater Turkish sector of the Black Sea. According to Turkey’s President Tayyip Erdogan, the Tuna-1 find – drilled by the drillship Fatih-1 – holds potential resources of 320 bcm. Thomas Purdie, an analyst on Wood Mackenzie’s upstream research team, said that even if the 320 bcm figure is an estimate of gas in place, this remains Turkey’s largest-ever gas discovery and one of the biggest globally of 2020.