Companies in the deepwater drilling market have lost more than half of their value over the last year; Transocean, Seadrill, ENSCO and Diamond are currently priced 56% lower on average compared to January 2014 in line with the decrease in oil prices. While these sharp falls in share prices reflect similar trends across the oil and gas industry, the number of active ultra-deep water rigs have remained high with 171 units contracted versus 175 units last January. Dayrates have also increased slightly from an average of US$470 000 to US$485 465, though this is largely a result of contracts signed before the fall in oil prices.
Concerns about drilling contractors’ backlogs and their ability to put their most expensive assets to use are well founded with operators announcing decreases in capital expenditure. However, based on Douglas-Westwood’s offshore drilling forecast, there are still plenty of wells to be drilled if the 2015 oil prices average between US$50 - 70/bbl. Total wells drilled could be expected to increase by 17% by 2020 with deepwater wells growing at 32%, despite the current price environment.
A fundamental issue is not only a lack of demand, but one of the industry’s own making. The recent build cycle has resulted in a sharp growth in supply that will need time to be absorbed by expected long-term growth in demand. Like other subsectors of the offshore marine industry such as offshore vessels and production assets, supply not just demand will determine the future direction of the offshore drilling market.
Kian Zi Chew, Douglas-Westwood Singapore
Adapted from a press release by David Bizley