OFFSHORE TECHNOLOGIES & MARKETS
Higher oil prices foster
optimism for recovery in
offshore drilling market
Industry is hopeful that investments in offshore E&P will grow
as geopolitical events put new spotlight on energy security
BY STEPHEN WHITFIELD, ASSOCIATE EDITOR
T he offshore drilling sector has had a challenging few
years. When energy demand fell off rapidly at the onset
of the COVID-19 pandemic in 2020, operators’ appetite
for investing in offshore projects also dropped off dramatically.
However, in recent months, as production levels have increased
again to pre-COVID levels and with the oil price continuing to
recover, there is renewed optimism in offshore E&P activity
among drilling contractors.
Highlights
More stable oil prices expected for the
forseeable future, combined with lower
threshold for offshore projects to be
profitable, will likely add opportunities for
contractors to put rigs back to work.
However, dayrates are still slow to increase,
and significant reinvestment into rig
fleets is unlikely in the near term. Growing
profitability will remain a key priority for the
service sector.
Amid geopolitical instability, a focus on
licensing and exploration could help
countries achieve better energy security.
30 Another factor at play is that geopolitical events have sent oil
prices shooting upward. Brent crude price reached a 2022 peak
of $127.98 on 8 March, two weeks after the onset of the conflict
in Ukraine. Although that price has since fallen to $111.16 as of
17 April, overall oil prices are still at a level that encourages sig-
nificant investment. Moreover, the war in Ukraine highlighted for
many countries the need for energy security, encouraging them
to reduce their reliance on imports. This could lead to a more
favorable environment for offshore development, some drilling
contractors anticipate.
“The industry saw post-pandemic recovery with a clear uptake
in the market,” said Eirik Reinertsen, Chief Commercial Officer
at Stena Drilling. “The offshore industry has already and, we
believe, will continue to see an uptake in activity. That should see
increased investment, both in renewables and in the oil and gas
sector. I think that the future looks brighter for the energy sector
as a whole.”
While the Ukraine conflict created spikes in the oil price, it had
been on a steady upward trajectory for the past two years – Brent
crude rose from a post-downturn low of $24.81 on 19 April 2020 to
$94.05 on 23 February 2022, the day before the Russian invasion.
With the oil price increasing and operators looking to ramp up
drilling activity, drilling contractors are seeing more opportuni-
ties to get their rigs back in the market.
“We’ve seen some increased market inquiries and tendering
starting around the end of last year,” said Clay Coan, President
of Northern Offshore, whose fleet of jackups are working in the
Middle East. “Operators are showing an increased willingness
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