The deepwater drilling sector is experiencing a remarkable resurgence, with floating rig utilisation reaching an impressive 90% in 2023. According to a recent report from Wood Mackenzie titled “Are we at the tipping point of the deepwater rig market?” the industry has rebounded to pre-COVID levels, driving rates up by 40% over the past year. This surge in demand shows no signs of slowing down, with experts forecasting a further 20% increase in rig demand from 2024 to 2025.
The report highlighted the pivotal role of the “Golden Triangle” regions of Latin America, North America, and Africa, along with parts of the Mediterranean, which are expected to account for 75% of global floating rig demand through 2027. Their rich offshore reserves and untapped potential make them attractive investment destinations for deepwater exploration and production.
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Wood Mackenzie revealed that active floater utilisation has made a remarkable recovery, climbing from a low of 65% in 2018 to over 85% in 2023. Additionally, the number of contracted ultra-deepwater (UDW) benign rigs has returned to pre-pandemic levels. As a result, day rates for best-in-class floaters have doubled in the past two years, reaching new heights in response to the increased demand.
Several factors have contributed to the resurgence in deepwater development. Higher oil prices have played a crucial role in incentivising exploration and development activities. Furthermore, the focus on energy security and the environmental advantages of deepwater drilling have provided additional support. Leslie Cook, principal analyst for Wood Mackenzie, states, “Active supply is now more in line with demand, and rig cash flows are positive. We expect demand to continue to rise.”
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The heightened industry activity has driven rates up by 40% in the past year alone. Wood Mackenzie predicts an 18% further escalation in floater day rates, with rates of US$500,000/day or above potentially returning for highly-prized, advantaged ultra-deepwater rigs before the end of the year. In the first half of 2023, benign ultra-deepwater rigs have already averaged US$420,000/day, indicating the sector’s robust financial performance.
Cook believes that the industry is approaching a tipping point for new builds and reactivations. While it has not been reached yet, the report said it is only a matter of time before rig companies undertake new construction and reactivation projects. Factors such as the need for decarbonisation, technological advancements, improved efficiency, and fleet replacement will drive the industry into a new cycle of growth. If rig economics remain strong and contractual risks continue to abate, this tipping point may arrive sooner rather than later.
