The North Sea drilling market is facing up to the prospect of lean times for at least the next two years, according an experienced industry analyst.
Jobs losses, scrapped and laid up rigs and reduced day rates that have halved in just two years, are all hallmarks of the new reality for drilling contractors operating in the region.
Rod Hutton, senior manager at analysts IHS Energy, in Aberdeen, said the present situation was the worst he had experienced in 20 years watching the market.
“Drilling contractors are having a terrible time. It really is as bad as I have seen. Operators have cutback their drilling activity to the bare minimum and there is a great deal of over capacity for semi-submersibles in the entire North Sea – including the UK and Norwegian sector.”
“There simply isn’t enough drilling activity taking place – there’s probably been less that 20 new wells drilled in the UK sector this year. This situation doesn’t appear to be changing any time soon and I’d expect 2016-2017 to be at least as bad for contractors.”
Transocean, the biggest offshore-rig operator, won a contract to drill four wells off Norway for Det Norske Oljeselskap this week at a day rate of about $180,000, the lowest recorded tariff in the country since the oil price crash last year.
Hutton said: “In 2013 days rates were $450,000/$500,000 a day in the Norwegian sector, so that’s a huge reduction. The same goes of for the UK sector – rates are currently around £200,000 a day, compared with $430,000 a couple of years ago.”
“It’s a classic supply and demand industry and there is definitely far more supply at present than there is demand. Contractors are fighting for any work they can get. Day rates might be half what they were but any driller will be happy to get the work.”
Drilling companies have taken to scrapping or drystacking rigs that are unlikely to be called back into service soon. 2014-15 saw the scrappage numbers hiked. Up to 50 rigs are currently earmarked for scrap out of a global fleet of 309 floaters, said Hutton.
Total rig utilisation in the North Sea fleet of has dropped from nearly 99% in December 2013, to just 75% in November 2015, according to figures from IHS Energy.
Globally, 72 rigs are currently under-construction – many for deepwater utilisation, a market that has been at least as badly affected as the semi-submersible market.