Drill ships’ rates to increase from $84M daily to $100M – Wood Mackenzie report

Jun 14, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – A few months ago Kaieteur News reported that American drilling company, Noble Corporation is being paid over $84M (US$420,000) daily for each of its four drill ships that is being utilised in the Stabroek Block, by ExxonMobil Guyana.

However, a new report from Wood Mackenzie, global research and consultancy group, has shown that as rig utilization has returned to pre-COVID levels, driving rates up by 40 percent in the past year, with an expected increase of 18%.

Wood MacKenzie anticipates before the end of the year, rates of US$500,000/day or above may return for highly-prized, advantaged ultra-deepwater rigs. Benign ultra-deepwater rigs have averaged US$420,000/day in the first half of 2023, with utilization at 90%.

“With increasing demand and rates, we are approaching the tipping point for new builds and reactivations,” said Cook.

“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.”

Wood MacKenzie also reported that the demand for rig utilization is forecast to increase another 20% from 2024-2025.

The report questioned, “Are we at the tipping point of the deepwater rig market?” as active floater utilisation has rebounded from a low of 65% in 2018 to over 85% in 2023, the number of contracted ultra-deepwater (UDW) benign rigs has returned to pre-COVID levels and day rates for best-in-class floaters have doubled in the past two years.

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

Much of this expected growth will come from the “Golden Triangle” of Latin America, North America and Africa, as well as parts of the Mediterranean. Wood Mackenzie projects that these areas will account for 75% of global floating rig demand through 2027.

Notably, owing to the 2016 Production Sharing Agreement (PSA) Guyana signed onto with Exxon – all of the company’s expense will be recovered. Under the deal, Exxon receives profits after 75 percent is withdrawn to cover operational expenses.

In Noble’s 2022 results review, the company disclosed that their day rate per rig is low-to-mid US$400,000, which is G$80M or more. As such, for every day that the four drill ships work, Guyana will have to foot the bill. This is as a result of contract that Exxon awarded to Noble during the fourth-quarter of 2022, for an additional 7.4 rig years for ultra-deepwater drill ships Noble Tom Madden, Noble Sam Croft, Noble Don Taylor and Noble Bob Douglas to work in Guyana until November 2025.

Noble had explained that market-based day rates are resent twice per year (March 1, and September 1) to the projected market rate at that time.

Notably, in May last, the company announced ExxonMobil Guyana has extended their contract for the rental of four of their drill ships at an average day rate of about US$420,000 (GYD$84 million) for each. With the new extension by ExxonMobil Guyana, drill ships Noble Sam Croft, Noble Don Taylor, Noble Tom Madden, and Noble Bob Douglas will work in Guyana until second quarter of 2027.

The rig market has been experiencing a revival after years of doldrums and Noble is eyeing a big payday as it expects an increase in the demand for ultra-deepwater rigs of between 12 and 15 units around the globe within the next 18 months, especially in places like Brazil and Guyana.

Noble’s operating highlights and backlog revealed that the company marketed fleet of 16 drilling rigs was 91 percent during the fourth quarter of 2022.

This included seven ultra-deepwater rigs added following the merger that ended with Maersk Drilling. It was stated that Tier 1 drill ships area commanding increased day rates, around US$400,000, and that the company secured since early November 2022, 24 months of additional work for four sixth generation (6G) and seventh generation (7G) drill ships at an average rate above US$420,000 per day – the company did not mention in its review if the four 6G and 7G drill ships are the ones deployed for Exxon’s Guyana operations.

Commenting on Noble’s outlook, the company’s Chief Executive Officer (CEO), Robert Eifler had stated, “We continue to see a very promising fundamental setup for the offshore drilling business, governed by increasingly tight industry utilisation, robust customer economics and demand growth visibility and, not least, rational capital allocation in our industry. As the market improves, we remain focused on execution across all facets of our business, and are committed to returning capital to shareholders.”

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• ExxonMobil, Noble Corporation, Stabroek Block, utilization, Wood Mackenzie

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