Golden Triangle and Mediterranean to spearhead rise in rig demand

After a slump in demand during the COVID-19 pandemic, floating rig utilisation picked up speed last year, exacerbated by the race to strengthen energy security in the wake of the global energy crisis, which came to life as a result of the Ukraine crisis. As rig utilisation levels have now rebounded to pre-COVID highs, Wood Mackenzie anticipates rig demand to skyrocket by a further 20 per cent over the next two years, driven by the Golden Triangle and parts of the Mediterranean.

According to a recent report from Wood Mackenzie, called ‘Are we at the tipping point of the deepwater rig market?,’ higher rig utilisation has pushed day rates up 40 per cent in the past year while demand is expected to increase another 20 per cent from 2024-2025.

Leslie Cook, principal analyst for Wood Mackenzie, remarked: “Higher oil prices, the focus on energy security, and deepwater’s emissions advantages have supported deepwater development and, to some extent, boosted exploration. Active supply is now more in line with demand and rig cash flows are positive. We expect demand to continue to rise.”

The report highlights that active floater utilisation has rebounded from a low of 65 per cent in 2018 to over 85 per cent in 2023. In line with this, the number of contracted ultra-deepwater (UDW) benign rigs is now back to pre-COVID levels while day rates for best-in-class floaters have doubled in the past two years.

Furthermore, Wood Mackenzie underscores that most of the expected growth in rig demand will be coming from the Golden Triangle – Latin America, North America, and Africa – and parts of the Mediterranean. The energy intelligence player projects that these areas will account for 75 per cent of the global floating rig demand through 2027.

A rise in day rates is also on the cards, as Wood Mackenzie anticipates a further 18 per cent increase for floater day rates. While benign ultra-deepwater rigs have averaged $420,000/day in the first half of 2023, with utilisation at 90 per cent, the firm believes that rates of $500,000/day or above may return for highly-prized, advantaged ultra-deepwater rigs before the end of the year.

“With increasing demand and rates, we are approaching the tipping point for new builds and reactivations. We haven’t reached it yet, but for new builds, it’s not a question of if, but when. The need for decarbonisation, technological advancement, more efficiency and, ultimately, fleet replacement will drive a new cycle. If rig economics remain robust and rig companies see contractual risks abate, this could be sooner rather than later,” added Cook.