Oil Price Rally Revives Offshore Oil Sector

Oil Price | Irina Slav | October 17, 2018

offshore rig

The offshore drilling segment of the energy industry was among the hardest hit by the 2014 downturn. Many went under, and those that did survive were on their last legs when prices began to climb back up. Now, things are looking up and the sector could see a full recovery by 2020.

Reuters recalls in a recent story how offshore drilling rigs fetched around US$180,000 per day during the worst of the downturn, from as much as half a million dollars before. Now, according to offshore drilling giant Transocean, it is raking in US$300,000 per day for its specialized vessels deployed in the North Sea.

That should come as no surprise: just like oilfield service providers, offshore drillers first suffered more than producers and are now reaping the benefits of a recovering industry. But the future of offshore drillers was always less certain than that of the oilfield service sector as a whole. The reason: offshore drilling is as a rule costlier than onshore exploration and production, especially in deep waters. In a lower-for-longer environment, E&Ps are naturally opting for cheaper resources. Yet this is by no means the whole picture.

There’s still a future for offshore oil, and it’s not too bleak; in fact, in parts of the world, it’s rather bright, with these parts including Brazil, parts of South America, and, perhaps somewhat surprisingly given its legacy status, the North Sea. Supermajors are in a rush to expand their footprint in these hot spots and they will need rigs to explore them and pump the crude and gas. The drilling sector is gearing up for higher demand.

In the second quarter of last year, offshore drillers retired the most rigs over a three-month period, Bloomberg reported at the time, citing an energy advisory firm. Now, IHS Markit has forecast that in 2020, global drilling rig demand will hit 521 on average, versus its estimate for this year, which is for 453 rigs.

Read the full story here.