The recovering deepwater drilling market has encouraged drilling contractors to expand their fleet and companies are now starting to purchase stranded assets in shipyards.
A joint venture that includes Transocean recently announced the purchase of the stranded 7th Generation drillship West Aquila, while Stena Drilling still has its option to acquire Stena Evolution (ex-Ocean Rig Crete). As dayrates continue to increase in an ever-tighter drillship market, more transactions are expected to happen in the next few months.
The drillship market has been leading the deepwater recovery, which has accelerated in 2022. The prolonged downturn resulted in significant scrapping and conversion sales, and the drillship fleet has been reduced by approximately 15% since 2018. The combination of reduced supply and increasing demand for deepwater drilling has brought contracted utilization to over 90%.
The supply crunch has caused an increase in dayrates, with rates rising from USD 300,000 in early 2022 to over USD 400,000 in the Golden Triangle (US GOM, South America and West Africa) just seven months later. This trend is expected to continue into 2023 as offshore E&P is forecasted to increase and we could soon see dayrates in the USD 500,000s.
Drilling contractors are now moving to acquire additional units to take advantage of the USD 400,000 (and counting) per day environment. US drilling contractor Transocean has a USD 15 million non-controlling investment in Liquila Ventures, the company which has agreed to purchase West Aquila for around USD 200 million and maintains the exclusive right to market and manage the modern drillship. However, Transocean was not the only party interested in the rig, which indicates that more transactions are on the horizon.
Many deepwater drilling contractors have a drillship utilization at or close to 100%, which means that newbuild acquisition is a necessary step to securing new contracts with high dayrates. Seadrill and Diamond Offshore, to name a few, have most of its fleet contracted until 2024, so purchasing newbuilds with potential delivery dates in 2023 would open these companies up for bidding on new contracts.
Brazilian drilling contractors Constellation and Ocyan have all their drillships contracted to Petrobras on long-term contracts and, with more demand expected from the Brazilian NOC, it could make sense for these contractors add a drillship to their fleet.
There are only a few stranded drillships left in the Asian shipyards, so drilling contractors will likely have to move quickly to secure these assets. There is currently one unit with DSME, three with Samsung HI, and one with Keppel Fels. Now that the market fundamentals have caused rig utilization and dayrates to improve rapidly, it appears that these once abandoned newbuilds are once again hot commodities.