Demand for high-spec offshore rigs 'extremely' strong: Transocean CEO

Demand for high-specification 6th- and 7th-generation offshore drilling rigs remains "extremely" strong, with longer terms and improving day rates that now top the landmark $500,000 for the most capable equipment, the top executive of deepwater driller Transocean said April 30.

However, the pace of signing contracts has "moderated somewhat" from this time last year, as the expense of more complex wells has become heftier, CEO Jeremy Thigpen said in webcast remarks during his company's first-quarter earnings call.

"With day rates increasing and terms extending, the financial commitment from our customers has become far more substantial, requiring more approvals within our customers' organizations and with their partners," Thigpen said. "[That] obviously adds time to the process."

Over the next several months, Transocean expects numerous long-term contracts to be awarded at increasing day rates, reflecting industry's participants' recognition of market tightness, he said.

Contract durations for new, ultra-deepwater rate fixtures reached 511 days in Q1, pretty much in line with the 2023 average of 526 days and up from 302 days in 2022, he said, adding longer contract durations are one of many factors supporting improved supply-demand contract dynamics.

But the term is important to Transocean because with longer terms many of its customers have become willing to co-invest in some of the new technologies the driller developed and tested during the 2020-2021 pandemic-caused industry downturn, but was unable to fully deploy given financial constraints, he added.

'Actively' discussing 1- to 3-year terms

Underscoring the confidence of customers in the duration of the current upcycle, Thigpen said Transocean is now "actively" in discussions for rigs with contract lengths of one to three years.

"In fact, all indications continue to suggest heightened demand for at least the next several years," he said, citing independent consultancy Rystad Energy which anticipates 2025 greenfield capex offshore will be the highest in 12 years.

And by 2027, Rystad sees total deepwater investment deepwater investment will reach nearly $130 billion, an increase of about 40% over 2023, he added.

Thigpen also noted a number of important deepwater projects are expected to reach a final investment decision this year, including BP's Kaskida field in the US Gulf of Mexico, which is one of a number of still-unproduced discoveries with 20,000 psi Kaskida was discovered in 2006 but not producible until recently since industry lacked the wherewithal to produce such a high-pressured field.

However, Chevron's Anchor field and Beacon Offshore Energy's Shenandoah field, both in the US Gulf, are similarly 20,000 psi fields discovered in 2014 and 2009 respectively which are now under development. Anchor is slated for first oil at midyear 2024, and Shenandoah also sometime after that.

Other notable fields anticipated to be greenlighted before the end of 2024 are Shell's Bonga North in Nigeria, Total's Venus in Namibia, while ExxonMobil's Whiptail field in Guyana was approved for development earlier this month, Thigpen noted.

Market tightness seen for foreseeable future

"These [project sanctions] reinforce our confidence there will be sustained market tightness for the foreseeable future" offshore, Thigpen said.

In fact, virtually every major offshore producing region in the world will "actively" have a call on rigs, Roddie Mackenzie, Transocean's executive vice president and chief commercial office, said.

"At the moment, there's a significant number of direct negotiations or tenders to secure the rigs already active," Mackenzie said. "My view is that 2024 will pretty much see the active fleet sold out for two to three years going forward and when we get towards the end of 2024, that's when the stacked" or idled fleet will begin to be reactivated and return to work.

However, Transocean won't immediately reactivate rigs until absolutely necessary – although "we think we have an active shot in putting many idle rigs to work by the end of the decade," he added.

Transocean has the only two rigs in the world with 20,000 psi blowout preventers – the Deepwater Atlas and the Deepwater Titan, Thigpen said.

The driller just signed the Atlas for a follow-on contract with Beacon Offshore Energy starting after its current term expires May 2025, for 240 to 360 days of additional work at a day rate of $505,000, he added.

Transocean has two other $500,000/d signed contracts for future work and another contract just below that milestone level, but company officials expect more to follow as existing contracts expire.

Mackenzie said rival drillers are also now pushing for that same benchmark rate.

'We hear that many competitors are at the same level or higher, and we expect in the next few months there will be four or five additional awards in US Gulf above $500,000 a day," he said.