Middle East rigs move out of region after Aramco-led slide

Middle East drilling rigs suspended since Saudi Arabia's decision to halt a long-planned expansion of its oil production capacity and reduce upstream capital expenditures last year have been moved to many other parts of the world after a 21% slide in average day rates for premium jackup rigs in the past year, according to the principal research analyst at Petrodata Rigs in London.

The release of rigs caused Middle East jackup day rates to fall below the global average in February 2024 for the first time since November 2023, according to Petrodata Rigs data by S&P Global Commodity Insights. Global rates have come down as Saudi Aramco rigs were offered globally, initially depressing Southeast Asia rates and now spreading to West Africa, according to analyst Pamela Cordova of Petrodata Rigs. Saudi offshore drilling services firm ADES switched two rigs from Saudi Arabia to Nigeria, and two to Thailand in the past six months.

The average Middle East rate for a jackup able to drill in 361-400 feet of water was $102,250/day in January, close to the one-year low of $102,000/day in September 2024, Petrodata Rigs data shows. The global average for the same rig was $122,733/day in January, maintaining a premium over the Middle East rate since February 2024. Saudi Aramco in January 2024 said it had canceled its oil capacity expansion on the orders of the energy ministry.

"We don't expect it to come down much more because the contractors can't afford it, they are still recovering from a long downturn. In addition, prices for services in general have increased," Cordova said. The previous downturn lasted for about two years during the coronavirus pandemic and was followed by a two-year upturn until 2024. Before that, the market had come out of a downturn that lasted for seven years, she noted.

As a result of the switch, Aramco suspended 33 offshore rigs, with 11 of those assigned elsewhere and 13 terminated, according to Cordova. Aramco did not respond to a request for comment.

"We are taking this as a slowdown, not a downturn," the Petrodata Rigs analyst said. "It just means that there's no growth for the time being, until marketed utilization picks up again. The day rates have decreased but the overall contracted activity has not. Rates are now in a range that's sustainable for most companies in the long term, as long as it stays within this range. Contractors can still make some money and the operators are more comfortable paying what rates are now."

Current drilling is needed to maintain oil production in the Middle East, without pushing up costs. "Many operators are pushing their programs to make sure that the budget for those projects stays at current levels or goes even lower. They just don't want the cost of services to keep increasing," Cordova said.

Looking at Aramco rigs, three Saudi units have been moved to China, four to Southeast Asia, three to West Africa and two are going to Brazil, she said.

Oil and natural gas producers in the Middle East from QatarEnergy to Abu Dhabi National Oil are eager to take advantage of the lower rates, Cordova said. "All the operators are happy to see that day rates are coming down. It would have cost about $130,000-$150,000/day to extend a rig contract 18 months ago, compared to $110,000-$125,000 a day now," she said.

Even Saudi Arabia may ease up on exploration spending in oil this year, she said. "From what they've announced, they are a bit more positive" than last year. "In the last update Aramco said upstream developments enhance production flexibility and progress gas expansion."

Aramco has 58 jackup rigs operating offshore Saudi Arabia, compared with 90 rigs contracted at the peak, according to Cordova. The count may increase to 65 at most, she said, adding: "We never expect them to have an offshore fleet of 90 jackups again."

The global total is about 500 rigs, with ADNOC operating about 35 jackups for offshore oil, she said. The Middle East at its peak had 192 rigs in service, and that is now down to 163, she said.

High-specification jackup rigs used for gas projects in Saudi Arabia and Qatar cost about $140,000-$150,000/day. While global rigs are usually contracted out for six to 12 months, Middle East terms run from five to 15 years, she said.