Driller Noble sees 'encouraging' offshore market, but some slower demand growth

Driller Noble Corporation, a supplier of shallow-, deep- and ultra-deepwater rigs, sees an "encouraging" offshore market ahead although demand growth in some spots this year has been slower to materialize than expected, the driller's top executive said Nov. 1.

While contracting activity and utilization rates have remained firm year-to-date in 2023, there has been "some concern" in the market recently over an apparent lack of demand growth in the past few quarters as indicated by the contracted ultra-deepwater rig count, Robert Eifler, Noble's President and CEO said during a third-quarter earnings conference call.

"We see nothing to indicate any type of underlying problem with demand growth, although it has been slightly slower to materialize in the short term," Eifler said. "Over the past few years we've seen a similar pattern of seasonality in which the volume of total ultra-deepwater contracts in a given year has been slightly weighted towards the first half of the year."

"This appears to be playing out similarly this year," he said.

A day before Noble's call, Transocean, a larger pure-play deepwater driller, enthused over the current upcycle and its potentially multiyear duration in its own Q3 call. One top Transocean executive, in response to an analyst question, made similar remarks about the aforementioned seasonality that may have caused some market concern over sluggish demand.

Slow demand may reflect 2024 budgeting

"You're basically right in the budget season right now for the major operators," Roddie Mackenzie, Transocean's executive vice president and chief commercial officer, said Oct. 31. "And typically, what we see is a lot of interest in the fourth quarter where people start thinking about what other fixtures they'll make in [the new year] and start putting out tenders."

"You may or may not be aware, but some of the big operators are out for tenders just now, and there's more expected for kind of multiyear, multi-rig, multi-country tenders," Mackenzie said. "So we expect to see several of those in the near term."

Looking ahead to 2024, Noble's Eifler said his team continues to expect a double-digit percent increase in ultra-deepwater rig demand globally, driven primarily by incremental requirements throughout the Americas and West Africa.

"Brazil continues to be a major fulcrum of demand growth, and ... Petrobras' total floater fleet is poised to expand from 24 contracted rigs currently to approximately 30 rigs over the next year, based on recent and pending awards," he said.

In addition, "major projects in Namibia and Suriname are poised to drive incremental day rate requirements and established ultra-deepwater basins such as Angola and Nigeria continued to trend higher," he added.

Overall, supply and demand dynamics and the outlook for both deepwater rigs and harsh environment-capable shallow-water jackups remain "very similar" to three months ago, said Eifler. The contracted ultra-deepwater rig count has hovered in the low 90s% since early 2023 and utilization of the marketed fleet of 99 rigs has been "stable," with leading-edge day rates for working high-specification drillships – seventh and eighth generation – in the mid-to-high $400,000s, he said.

Day rate contracts for rigs that are being reactivated are a "step lower" – in the low $400,000s/day – while day rates are in the mid-$300,000s to mid-$400,000s for sixth-generation rigs, Eifler said.

'More moderate slope' of day rate increases

"We had originally anticipated some of these programs to go to working rigs which, combined with normal blips here and there and certain programs [delayed], has resulted in a slightly more moderate slope of appreciation [for day rates] in the ultra-deepwater market in 2023 compared to 2022," he said.

"So, we're approaching the $500,000 day rate threshold a bit more slowly than we had previously expected," he said. "But if you scratch a little deeper what you find is that the ultra-deepwater market is still in fact tightening due to the steady absorption of the sideline capacity."

Transocean has already signed a rig deal for one of its semisubmersible rigs for a day rate over $500,000, for a contract set to start in March 2026.

And while harsh-environment jackups have been a lagging part of Noble's business mainly from demand softness in the North Sea and Norway, Eifler reported that one such Noble rig, the Regina Allen, has been contracted for a three-well program by TotalEnergies offshore Argentina. That project will start in mid-2024 at a day rate of $150,000 excluding mobilization fees, he said.

That is in keeping with leading edge fixtures for harsh jackups outside of Norway, which have been in the range of $130,000/day to $150,000/day, he said.

Also in the North Sea, the Noble Resilient jackup was recently awarded a 120-day contract with Brazil's Petrobras at a rate of $133,000/day that will begin in mid-2024. Also in the North Sea, the jackup Noble Reacher has been extended by 15 months with TotalEnergies through exercising priced options that extends the rig to mid-2025 with one year of priced options remaining.

Because the options are legacy priced, the Reacher's day rates will remain materially below the more recent leading-edge fixtures, Eifler said. The driller's most recent fleet status reports did not list day rates for the rig.