Long-time oil service sector investors have seen a rise in share prices in the past year. Floater mainstay Transocean (NYSE – “RIG”), which had hovered between $3-$4/share for much of 2022, jumped up above $7/share in Feb and March 2023; jack-up specialist Borr Drilling (NYSE- “BORR”), likewise, which had dipped as low as $2/share in mid 2022- jumped as high as $8/share in early April 2023.
A webinar hosted by brokers BTIG, moderated by veteran oil services analyst Greg Lewis, featured a highly informative dialogue with Rystad Energy Lead Offhore Analyst Liz Tysall which delved deeply into the underlying market dynamics underlying these gains.
Lewis set the stage by referring to the “interesting times” in the business with “…leading edge day drillship day-rates in the mid/high $400K range…”. Talking about the floater segment, Tysall painted a picture of the oil Majors driving up Exploration and Production (E&P) activity, with 2023 spending roughly 15% higher than that in 2022, with more activity expected in 2023; Petrobras and Equinor were mentioned specifically as driving the long-term contracting in the sector.
The past four or five years, with bankruptcies and restructurings, have now seen a pickup and merger/acquisition activity, along with sale and purchase of equipment; the Maersk Drilling / Noble tie-up, and Seadrill/ Aquadrill were mentioned as specific M and A examples, while en-bloc jack-up sales by Seadrill (to Ades) and by Noble (to Shelf Drilling) were looked at as opportunities for drillers to exit a particular region. “I think that there is still room for one or two more companies to jump on the M and A bandwagon….” Tysall said, adding that: “…the M and A activity has tightened up the market...playing into the higher day rate situation that we have now.”
Looking forward, the presentation showed a market primed for more upward movement. Lewis pointed to West Africa and broader South America (Brazil, Guyana) as areas to watch for expansion- in the floating sector. Looking at Rystad statistics on contracted fixtures compared to consumed volumes, Tysall suggested that the data “…bodes well for the industry…it suggests that they are getting their rigs onto contracts…there’s enough work to support rates…” For jack-ups, she said, “It really tipped off last year- based on the amount of tendering that Saudi Aramco…ADNOC and Qatar Energy… did. The contract durations for jack-ups, in recent years, have been longer durations than those for floaters.”
In a series of slides looking at rates and utilization, the floater side (semi-submersibles and drillships) are seeing longer lead times and contract durations, with committed utilization at 85% broadly (with ultra deepwater units seeing 91% utilization). Among the longer term contracts at higher rates, the transactions mentioned included Noble Faye Kozack going to Kosmos Energy at $450K/day, and Transocean’s Deepwater Asgard and Deepwater Conqueror going to Hess and Chevron, respectively, at $440K/day. More recently, RIG’s Deepwater Invictus went to Murphy Oil at $425K/day.
Data on the jack-ups shows utilization at 87% overall, with premium jackups seeing 93% overall. High end units are now on the verge of seeing $160K/ day, following term fixtures at $129K/ day by Saudi Aramco ( Shelf Drilling Victory ), and $140K/ day by Eni (on Borr Drilling’s Prospector 5, for work offshore Congo). Notably, the number of “orphaned” jack-ups (that had been left in the shipyards following the market bust circa 2014 - 2015), was down sharply from 60 units in 2016 – 2017, to about 20 rigs (or around 14, if units still in yards about to on charters are considered.
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