MEI: Offshore drilling has reached, neared bottom

London-based energy data and analytics firm McKinsey Energy Insights (MEI) has released its latest Offshore Drilling Market Outlook to 2030, saying activity appears to have reached or neared the bottom. Most of the drilling rig overhang from before 2015 has been removed, MEI said.

“Recent events have occurred in the market that suggest increased demand for drilling services going forward,” said MEI, which forecast 6% growth in operator capital spending from 2016-18. MEI analysts cited deregulation in Brazil and Mexico as reasons for higher operator spending.

Offshore drilling contractors are working on upgrades to existing rigs to make them more marketable as demand increased, MEI said.

Transocean Ltd. upgraded its ultradeepwater drillship Discoverer India with technical specifications. Diamond Offshore Drilling Inc. developed a floating factory design to improve deepwater well drilling.

Meanwhile, half of the floaters expected in 2015 were deferred and 81% of the floaters expected in 2016 were deferred. MEI attributed the deferrals to the oil-price slump that started late in 2014.

For jack ups, demand is expected to bottom out in 2017 at 295 rigs. MEI expects jack up demand eventually will rise at 2%/year through 2030. The firm forecast utilization at above 80% by 2021.

“Extensive retirement of older, lower-spec rigs is expected to drive a 7% decline in the increasingly high-spec jack up fleet to 489 rigs by 2030,” MEI’s outlook summary said.

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