As we embark on 2024, the offshore rig market braces for a year of dynamic changes and growth.
Westwood, a leading industry analyst, has outlined its top three predictions for the year, providing a comprehensive outlook on the market’s trajectory.
Initial availability spike but overall utilisation growth
Westwood’s forecast for the offshore rig market is predominantly optimistic, with a caveat of increased availability in the first half of 2024. The current inventory includes 27 jackups, three drillships, and eight semisubmersibles (semisubs) without future assignments. Additionally, 18 jackups, four drillships, and five semisubs are set to come off hire in early 2024.
In regions like the UK and Norway, the most active for semisubs, winter typically sees a slowdown. Conversely, drillships are experiencing higher availability, unseen since September 2021. Most of these rigs are likely being considered for new opportunities, with many close to securing deals.
Jackups, primarily located in Mexico, the Middle East, and Southeast Asia, are expected to see several extensions with current operators. This fluctuation is considered short-term, with a stabilisation anticipated as operators finalise their 2024 budgets and drilling plans. With a shift towards longer duration contracts, decision-making and deal execution have become more deliberate.
RigLogix data indicates 22 tenders for 2024 with durations of two to five years, many with additional option years. Including prospects for 2025 and 2026, this figure jumps to 46, some extending to a decade.
Westwood predicts a demand growth of up to 36 rigs year-on-year and a 3% increase in global marketed utilisation, driven by regions like India, Southeast Asia, South America, and West Africa.
Minimal attrition and continued supply growth
Despite rising demand, Westwood does not foresee a surge in new construction orders, as drillers prioritise financial prudence. However, reactivations and newbuild rig deliveries are expected to bolster supply.
Even with higher availability expected in early 2024, marketed utilisation could reach 96%, limiting rig choices and possibly leading to sublet activities or campaign delays. The number of reactivations and newbuild deliveries fell by 64% in 2023 compared to 2022, largely due to Middle Eastern NOCs meeting their requirements. However, companies like Valaris and Borr Drilling have plans to deliver newbuild rigs, some delayed for up to a decade.
Westwood anticipates increased demand for newbuilds and stranded assets in 2024, attributed to their modern and high-tech features. Currently, there are 16 jackups, five semis, and 11 drillships awaiting contracts.
With 86 cold stacked rigs, including 39 idle for over five years, only a fraction are viable for reactivation. Inflation and supply chain issues further complicate these efforts. Nevertheless, approximately 14 jackups, 12 drillships, and 12 semis are seen as potential reactivation candidates.
Rising dayrates with varied fixtures
2023 witnessed continued increases in dayrates for jackups, semisubs, and drillships, with some floating rig types reaching $500,000 per day. However, these high rates are not expected to become the norm for long-term contracts starting in 2024. Most high-rate fixtures in 2023 were for short-term deals or set to commence post-2024.
Westwood anticipates continued variance in floater dayrates, with some long-term deals likely to secure mid-to-high $300,000s rates. Meanwhile, the jackup segment has seen rates up to $180,000 for work off Australia, indicating an upward trend in line with market tightness.
With a tightening supply/demand balance, costly reactivation, new construction economics, and inflationary pressures, Westwood forecasts a continued upward trajectory in dayrates across all segments in 2024. Operators are expected to secure rigs earlier to mitigate rising costs and ensure availability of suitable assets.
Outlook for the Middle East
In 2024, the Middle East offshore rig market is anticipated to undergo notable transformations, driven by high global oil prices spurring increased demand, particularly in regions with untapped or expanding oil reserves – potentially Libya offshore, the Eastern Mediterranean, and in the Arabian Gulf.
Technological advancements are expected to shift preferences towards more efficient rigs, impacting utilisation rates.
Geopolitical stability will play a key role, with stable areas potentially seeing a boost in activities, while regions with political unrest might face reduced operations.
Additionally, stricter environmental and regulatory standards may compel significant upgrades to older rigs that are in use, impacting the pace of new explorations. In summary, 2024 stands as a pivotal year for the offshore rig market, marked by a blend of challenges and opportunities. Westwood’s analysis projects an initial surge in rig availability, but an overall positive trajectory in utilization rates, buoyed by regions like India, Southeast Asia, South America, and West Africa. The demand for rigs is set to grow substantially, balancing out with a cautious approach to new construction orders. The Middle East, in particular, will likely experience significant shifts due to high oil prices and geopolitical factors. Technological advancements and environmental regulations will further influence the market, steering it towards a future where efficiency, sustainability, and strategic planning are paramount.
