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Global jackup marketed utilisation has been on an upward trajectory since 2017 and reached its peak of 94% at the end of 2023. The North Sea jackup market has also improved year-on-year since 2017, except for a blip in 2020 when the pandemic kicked in, however booming demand isn’t the main driver behind this but instead a shrinking fleet.

According to RigLogix data, North Sea committed utilisation of the marketed fleet was at a low of 54% in February 2017, which was represented by a supply of 46 units with only 25 units committed. Committed utilisation steadily increased to 89% for the full year of 2019, however plunged 23% (25 units committed with a total supply 40 units) during the pandemic, reaching a trough of 66% on average for 2020 (and hit the lowest point of 55% during October of that year). By year-end 2023, utilisation hit 93%, represented by 30 committed rigs out of a marketed supply of 32 units.

Shrinking supply, following lower demand

Between January 2018 and October 2021, a total of 18 units left the fleet and were either sold for non-drilling purposes, converted to Mobile Offshore Production Units (MOPUs) or scrapped. Additionally, during December 2021, Noble Highlander became (and still is) idle. In July 2022, Borr Drilling’s Ran relocated to Mexican waters, and in February 2023 Valaris took the decision to preservation stack Valaris Viking “due to ongoing weakness and uncertainty being seen in North Sea jackup market over the next year”.

Between the last quarter of 2023 and the time of writing, five units completed offshore campaigns. All of these units have future work in place; however, two have or will leave the region in 1Q 2024 – namely the Shelf Drilling Perseverance (Vietnam) and Valaris 247 (Australia).

Northwest Europe Marketed Jackup Supply, Demand & Utilisation (Jan 2014-Jan 2024). Source: Westwood RigLogix

During 2017, there was a total of 16,700 days of contract backlog awarded, with the lion’s share coming from Norway (10,816 days), followed by the UK (5,407 days) and only 477 days of work awarded in the Netherlands. Contract backlog plummeted in 2020 to a mere 2,737 days awarded in total, however a strong recovery in 2021 saw awarded backlog more than triple to 9,424 days.

Fast forward to 2023 and this figure again declined to only 4,927 awarded days, with the UK sector awarding the largest proportion (3,807 days) and Norway awarding the least (303 days).

North Sea drilling activity has mimicked the peaks and troughs of the offshore industry over the past decade but has been in decline since 1Q 2015 by 50% to 60%, however plug and abandonment work has increased, which has helped to cover some of the shortfall in new drilling activity.

Dayrates moving north, but more lucrative deals elsewhere

Dayrates replicate where the market is in the cycle, however in the North Sea, rates have been lagging behind some other regions. Due to this and other contributing factors, including challenging tax regimes, the lack of certainty in the North Sea has driven drilling contractors to bid into regions offering longer duration programmes, often with higher dayrates.

Northwest Europe (Excl. Norway) Average Leading-Edge Jackup Dayrates (Jan 2014-Jan 2024). Source: Westwood RigLogix

Westwood estimates that there are eight tenders yet to be awarded for work set to commence during 2024, totalling some 1,178 days. Market sources suggest that three or possibly four campaigns, such as Shell’s UK Southern North Sea two-well programme for exploration and appraisal drilling (targeting the Selene and Pensacola prospects), along with ONE-Dyas’ two-well development drilling programme offshore the Netherlands, are close to being awarded. Meanwhile, one campaign is now being pushed into 2025 with the potential for two more to also be deferred.

There is only one unit that has free and clear availability from late 1Q 2024, however it is rumoured to be frontrunner for one of the outstanding 2024 requirements. Should extension declarations not materialise, or no new work get secured, a further seven units could become available but, for the most part, not until the second half of 2024.

RigLogix records one tender for work in 2025 (yet-to-be-awarded) and a total of 16 prospects that could equate to just shy of 12 rig years. Demand covers all types of activity: exploration (135 days), appraisal (225 days), development drilling (2,147 days), CSS (140 days) and P&A (1,699 days).

A flat near-term outlook

North Sea jackup utilisation is showing strength once again, however this is largely due to supply leaving the market rather than a recovery in demand. The outlook for the year ahead looks somewhat flat but there is still time for new demand with a 2024 start date to come to the fore.

Drilling contractors, though keen to keep their harsh-environment units in the region, will undoubtedly be considering moving more rigs elsewhere if the contract term and economics make sense to do so. However, if further rigs leave for multi-year campaigns elsewhere there may not be enough capacity to fulfil some of the longer-term CCS and P&A campaigns, which could come to fruition from 2025 onwards. Subsequently, the tightened supply and demand balance could result in a smaller pool of rigs to choose from and higher dayrates that could result in some of these campaigns becoming uneconomical.

Kathleen Gammack, Senior Rig Analyst
[email protected]