Delays of E&P projects don't impair offshore drilling market strength: Valaris

Even as a few deepwater drilling or development programs previously slated for 2024 have been pushed back by months or even into the new year, current oil prices and economics of offshore projects remain strong, the top executive at a large global deepwater driller said Sept. 3.

Despite some "white space" in the work calendars of offshore drillers that were discussed on 2024 quarterly earnings calls, the circumstances for delayed projects are not a trend and stem more from individual corporate decisions or unforeseen situations, Anton Dibowitz, CEO of Valaris, the world's largest offshore driller, said in webcast remarks at the Barclays CEO-Power Conference in New York.

"Short-term or medium-term macro concerns are not a driver" of any project delays, Dibowitz said. "[Oil company executives] look at where five-year-out Brent prices are. They're focused on the need for" more oil and gas globally over the coming years.

Brent oil prices have fallen since mid-July from roughly the mid-$80s/b to the mid-$70s/b. But even at $70/b oil, 90% of resources are "highly attractive" to oil company managers, he said, adding that even at $60/b, it's still around 80%" -- meaning the volume of projects attractive at that oil price, "even with some [price] pressure."

Dibowitz said a number of factors may have influenced project delays or deliberate decisions to let a project timeline slide: E&P operators' wish to stick to fiscal discipline that makes commitments to their boards on capex and dividends to be paid to shareholders. Or they may realize that they won't yet have infrastructure needed on a schedule to produce oil or gas, or one of the partners in a project has some other reason that requires taking more time.

He mentioned two Valaris programs that were delayed – one pushed into 2025 and another caused by a rig sublet program that would take more time than earlier believed, although he did not name the E&P operators.

Day rate direction headed higher

In the meantime, the direction of rig dayrates is unquestionably headed north, Dibowitz said.

For example, leading-edge day rates for floating rigis – semisubmersibles and drillships – are "well below" the last peak about a decade ago and this provides "plenty of headroom" to rise from current rates in the high $400,000s to low $500,000s. That is up from about $450,000/d a year ago, and substantially higher than in early 2021 when day rates were about $200,000 for a drillship, Dibowitz said.

In fact, current leading-edge floater day rates, if adjusted for inflation based on 2013-2014 rates, would likely be around $800,000/d he said.

Based on Valaris' monitoring of what it believes will be 30 programs that start in late 2025 and early 2026, "we see potential for an additional call on sidelined [i.e., idle] capacity, and there's still room for day rates to keep moving as the market continues to tighten," he added.

And despite the growing volume of renewable and alternative fuels projects, demand for oil and gas continues to grow, Dibowitz said. Valaris sees up to 113 million b/d of oil will be required to meet global demand, against a current 102 million b/d, he said.

Offshore is key future supply market

"When we consider the depletion that is happening on existing fields, 36 million [b/d] of new supply needs to be brought to the market," he said, adding a "significant" chunk of that figure will come from offshore, with the "biggest growth component" from deepwater. "Why? Because it's affordable."

Valaris has 53 rigs in its offshore fleet, including 18 floaters that work in deepwater and 35 jackups that work in relatively shallow waters. It also has the some of the highest-specification floaters around – 7th-generation.

A large number of its jackups work overseas, notably in Saudi Arabia as the company is in a joint venture with Saudi Aramco – the biggest market in the world. However, for a variety of reasons, including a desire to limit production capacity and infill drilling, and a shift in priorities to natural gas, Aramco released 22 industry jackups in 2024.

Despite that, leading-edge day rates in the jackup market remain in the $150,000 range, Dibowitz said, adding there has been an "orderly transition" of those rigs into the larger international market, although he said not all may obtain contracts in other countries.

"We see good opportunities for jackups internationally," he said, noting Valaris also operates in both Trinidad and Australia, where the driller obtains premium rates for what Dibowitz called "super high-spec jackups."

"It's not great for the market to have rigs released in Saudi [Arabia]," he added. "But with utilization north of 90% and leading-edge rates at $150,000 [per day] this is a manageable transition."