NEW ORLEANS –Early last year, the Gulf of Mexico oil and gas industry finally demonstrated that it had the capability to contain oil in the event of a blowout, a government requirement needed before drilling permits for new deepwater wells could be issued.
Since then, the industry has shown steady if unremarkable growth. Deepwater permitting continued to increase steadily in 2012. By November, there were more deepwater rigs in the Gulf than there were pre-Macondo. And the market should continue to strengthen. Eight ultradeepwater drillships are scheduled to arrive in 2013 and 2014. Several more deepwater rigs are under construction but not yet contracted and several are contracted but for unspecified regions.
Since early 2012, when it became apparent that natural gas prices were going to remain low for some time, many operators began shifting their focus to shallow-water liquids-rich areas on the shelf. This increased demand for jackups in the Gulf and led to higher day rates and longer contract terms. The market tightened so much that several jackup contractors considered reactivating coldstacked rigs.
Since an applicant first successfully demonstrated containment capabilities in mid-February 2011, the Interior Department has approved drilling permits for 175 unique wells (as of Nov. 1, 2012). Additionally, since the implementation of new safety and environmental standards, 72 permits have been awarded for deepwater activities that don’t require subsea containment.
Rig activity remained fairly flat into early 2012. A year after drilling permits began to be issued again, 15 semisubmersibles and nine drillships were working. Near the end of October, 17 semisubmersibles (23 contracted) and 15 drillships (17 contracted) were working.
However, deepwater drilling activity is expected to increase during 2013 and 2014, said Cinnamon Odell, rig analyst at IHS-Petrodata, Houston. One reason is that four newbuild drillships are scheduled to mobilize to the Gulf in 2013 and another four in 2014. “Several more semisubmersibles and drillships could move to the region during the same time,” she said.
“The outlook for our business is tied directly to the health of the offshore exploration and development business,” Jeffrey M. Platt, Tidewater Inc.’s president and CEO said during November’s earnings call with analysts. “Importantly, for the future, there are over 180 new floaters and jackup rigs under construction, with about half of them scheduled to be delivered within the next two years. This is a huge financial commitment to offshore exploration and development being made by the industry and, we believe, a strong signal as to the longer-term outlook for the supply vessel business.”
Gulf jackup rig activity is also strengthening. Hercules Offshore recently reported that day rates for its jackup rigs had improved as a result of more drilling permit activity. Hercules’ contract terms are also getting longer due to a shortage of suitable jackups. The company said its contract terms have increased to three-to six months from as little as 30-60 days a year ago.
The improving conditions could also result in Hercules reactivating some of its cold-stacked jackups. Other jackup contractors could follow suit.