Global Deepwater Drilling

global deepwater drilling market
I wanted to give a brief synopsis on the state of the global deepwater drilling market. Demand for drill riser buoyancy modules and supporting products depend primarily on the health of this market and the companies in it. The key metrics to follow that track the overall health of the market are: Contract Day Rate (how much a drilling contractor is paid on a per day basis for use of their rig by an operator) and Utilization Rate (what percent of the global fleet of rigs is currently under contract with an operator).  The laws of supply and demand are hard at work in this industry, but it appears stability may have finally been reached over the past year and half.
Trelleborg Offshore, Kelsey Ware

Kelsey Ware

Key Account Manager
Trelleborg Offshore Deepwater Drilling Graph
Source: IHS Markit

Ultra-Deepwater Semisubmersibles

Ultra-deepwater semisubmersible are defined as semisubmersible rigs that are capable of operating in at least 7500 feet of water. As early generations of offshore drilling rigs were not capable of performing these operations, ultra-deepwater semisubmersibles are among the newest and most capable semisubmersibles in existence. 
I think it is important to differentiate between a semisubmersible rig and its drillship cousin. In short, a semisubmersible rig is a floating drilling platform that is partially submerged in the water while the actual platform is elevated above the water’s surface. The rig is held in place over the drilling site by a combination of anchors and heavy ballast which gives it remarkable stability in chopping weather conditions such as those frequently found in the North Sea. Unfortunately, the rig's design also limits its mobility compared to an ultra-deepwater drillship and as such these rigs are most often used in development operations as opposed to exploration work. Here are the leading new contract day rate and utilization trends for semisubmersible rigs.

As we can see here, the utilization rate for ultra-deepwater semisubmersibles did increase slightly, although it does remain lower than the levels that it held earlier this year. Even so, we still see that less than 40% of the semisubmersible fleet remains employed, which continues to show that the oversupplied market conditions that have been plaguing the industry continue to persist. It does appear as though utilization rates may have bottomed, which indicates industry conditions may improve.

The low utilization rates serve as a drag on the leading contract day rate, which remained static month-over-month. While the leading new contract day rate is slightly higher than its low point that was hit back in February, it is still lower than the cash flow breakeven level on many ultra-deepwater semisubmersibles. The situation is unlikely to change anytime soon as day rates typically do not benefit from upward pressure until utilization rates improve.  

Trelleborg Offshore Deepwater Drilling Graph

Ultra-Deepwater Drillships

Ultra-deepwater drillships are defined as drillships that are capable of operating in up to 7,500 feet of water. In contrast to their semisubmersible cousins, these are ships (some are converted oil tankers) that have been specially equipped with drilling equipment. As these have regular seagoing hulls, they are fairly maneuverable so they are ideal for exploration work but lack some of the stability that semisubmersible rigs have in poor weather conditions. It is also worth noting that the vast majority of the ultra-deepwater rigs constructed over the past decade are drillships so these are as a rule more numerous than their semisubmersible cousins. Below are the leading new contract day rate and utilization trends for the ultra-deepwater drillship market.
As we can see here, the utilization rate for ultra-deepwater drillships has been almost completely flat over the past year and a half. While it does appear that the rate has bottomed out, it also appears that we have yet to see a significant recovery here. The current utilization rate is also lower than the levels that we need in order to see significant positive pressure on day rates.

As far as the leading new contract day rate is concerned, here we see that it too has remained relatively static month-over-month. While it is above its September 2017 lows, we can see that the day rate on new contracts is otherwise lower than it has been at any time over the past few years. The current day rate is also barely above cash flow breakeven levels.  
As was the case with the semisubmersible units the utilization rate still needs to recover significantly before day rates start to see demand pricing pressure.
Contact me to further discuss these market trends or to find out how Trelleborg Offshore is adapting our local presence and global reach to meet our customers’ needs.  

For any questions about Trelleborg’s market outlook for offshore oil & gas, check out our interim report.