OFFSHORE TECHNOLOGIES & MARKETS
All four of Northern Offshore’s jackups, including the Energy
Emerger (pictured), are working in the Middle East. Company
President Clay Coan noted an increase in tendering activity
in the region during the second half of last year.
Production is still expected to decline in the long term, of
course. Based on current levels of investment, the expected rate of
decline is between 7% and 10% by the end of the decade. However,
it’s important to note that the rate of decline could jump to 15% if
no new investments are made in the next two years .
A focus on new licensing and exploration can help balance this
decline in the coming years, with OEUK emphasizing the need
for a new licensing round to be announced this year. Its Business
Outlook shows that operators are planning nearly $26.13 billion
(£20 billion) in CAPEX on the UKCS from 2022 to 2026. New proj-
ects under consideration for development could bring up to $4.57
billion (£3.5 billion ) annually in new investments if approved,
unlocking around 300 million BOE per year in new reserves.
Contractors not feeling full benefit yet
Like with Stena Drilling, Mr Coan with Northern Offshore sees
an upward trend for the offshore drilling sector . While it is unclear
34 what kind of long-term impact the Ukraine conflict will have on
the oil price, Mr Coan said he feels the price has settled to a point
that will encourage operator investment in new projects.
“Speculating the future of oil prices will always be difficult, but I
do think it’s reasonable to expect that prices will remain at a level
that will continue to prompt investment by our customers. Whether
that means oil prices settle to the $70-80 range or they remain
north of $100, I don’t know, but I am confident they will be at a level
that encourages operators to go out and drill more wells,” he said.
However, drilling contractors have yet to feel the full benefit of
that upward trend – dayrates are still not at a high enough level
to enable significant reinvestment into upgrading rig fleets, and
existing terms for contracts signed earlier in the oil price recovery
timeline have not been adjusted to reflect higher prices.
“When oil prices crash, some of the oil companies are quick
to ask their service contractors to adjust their rates downward
accordingly. When oil prices increase significantly, the oil com-
panies generally have to go through a budget cycle before funds
are approved to tender for new rigs,” Mr Coan said. “The tendering
process itself can take many months before a contract is awarded.
So, while the market is improving, it hasn’t yet had a material
impact on the number of rigs contracted or market rates. We often
say that we take the slow elevator up and we take the stairs down .”
The downturn also forced drilling contractors to stack or retire
a number of rigs . However, Mr Coan said it is unlikely the recov-
ery will spur a newbuild cycle anytime soon.
“The severity of the most recent downturn is probably going to
limit investors’ appetite for newbuilds. There are just too many
rigs out there that are still available that need to be put to work
first. It is both faster and cheaper to get those rigs up and running
than it would be to invest in a newbuild,” he said.
Northern Offshore’s fleet of four jackups are currently work-
ing under long-term contracts in the Middle East. The Energy
Embracer, Energy Enticer and Energy Edge are working for Qatar
Petroleum through Q4 2023, Q3 2024 and Q4 2024, respectively.
All three contracts began in either late 2020 or early 2021. The
fourth jackup – the Energy Emerger – is working for an unnamed
operator offshore the UAE through Q4 2022. That contract started
in mid-2021.
Three of those four contracts were awarded prior to the oil
price downturn, while the contract for the Energy Emerger was
announced in October 2020. Since then, operators in the offshore
space and particularly in deepwater have been hesitant to award
long-term contracts .
Mr Coan said he’s hopeful that, as oil companies’ confidence
in a sustained high oil price environment grows, more long-term
contract opportunities will become available. But for now, when
making strategic contracting decisions, drilling contractors must
decide whether to bid low enough to secure short-term work or
hold out for longer-term contracts with improved dayrates.
“Each contractor has their own strategic objectives. For us, we
had to have the long-term contracts. We couldn’t justify taking
delivery of a newbuild rig and investing the money required to
deliver the rig to our customers for short-term work. Therefore,
we had to be selective for the right opportunity to take delivery of
our rigs and put them into the market.” DC
M AY/J U N E 202 2 • D R I L L I N G C O N T R AC T O R