This quarter the offshore industry faced the news that a significant proportion of the deepwater rigs of leading contractors such as ENSCO, Transocean and Seadrill will be seeking work in 2014. This omen has been taken by many as a sign of lacklustre demand growth for the once invincible deepwater oil & gas sector. But as in so many cases this is sensationalising one side of the story. One view is that an estimated 39 deepwater rigs, 22% of the available fleet, are coming off contract in 2014 and will be looking for work. However, utilisation rates are at five-year highs and DW predict deepwater completions will grow at a CAGR of 20% over the next five years.
If we still believe in the fundamentals, then why cautious sound bites from deepwater rig contractors? One angle is the commoditisation of the offshore supply chain by the E&P companies. Encouraging oversupply is desirable for operators that are understandably reluctant to see their costs continue to rise. It has even been suggested that contracts are being withheld from the market to coincide with anticipated rig deliveries, creating a more favourable environment for end-users. Compounding this is the increasing fragmentation facing the deepwater drilling segment – today there are twice as many contractors with active rigs compared to 2002. Greater fragmentation inevitably leads to less discipline in the marketplace and an inevitable decoupling of supply from demand; if oil companies can leverage overcapacity to supress pricing in an environment of growing demand then a difficult day may be dawning for deepwater rig contractors.
Thom Payne, Douglas-Westwood Singapore
+65 6635 2000 or [email protected]